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📝 Higher ECB Policy Rate Not Supportive For EUR/USD: Danske Bank

In our view, FX markets will continue to focus on the negative effects of higher policy rates on 1) housing, 2) consumer demand, and 3) the general investment case for Europe (where inflationary tailwinds appear stronger than in the US). Therefore, although the ECB is likely to continue to raise interest rates, we do not view this as supportive of EUR/USD spot and there is by now a great deal of events in FX which suggest the above line of thought is consistent with how it is traded. In terms of the communication from the ECB, the verbal emphasis on downside risks for growth will likely be a negative factor for the EUR. These considerations also appear in line with general indicators of demand that have declined, whereas indicators of inflation remain elevated. As such, we continue to see EUR/USD spot fixing below parity and our 12M forecast is 0.93 as we see more room to price-in stagflation in European assets, noticeably in FX. - Dasnke Bank Strategy



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