EUR/USD WILL MAKE A NEW LOWER CYCLICAL HIGH AT SOME POINT THIS YEAR – SOCGEN
EUR/USD continues to track shorter-dated yields. Kit Juckes, Chief Global FX Strategist at Société Générale, analyzes the pair’s outlook.
EUR/USD continues to track shorter-dated yields. Kit Juckes, Chief Global FX Strategist at Société Générale, analyzes the pair’s outlook.
The ECB will ease more slowly than the Fed and
EUR/USD has been tracking 2-year yield differentials in this rate-dominated market. We expect that spread to narrow from 170 bps now to under 100 bps in the second half of the year. If we took the correlation between EUR/USD and the yield differential at face value, that would have the Euro peaking close to 1.2000 but that seems unlikely to us; relative growth trends are likely to be an anchor.
However, we remain confident enough that a) the ECB will ease more slowly than the Fed and b) rate differentials will matter as much as perceived growth differentials, that EUR/USD will continue its slow-motion recovery and make a new lower cyclical high at some point this year (but well before the US election).
EUR/USD has been tracking 2-year yield differentials in this rate-dominated market. We expect that spread to narrow from 170 bps now to under 100 bps in the second half of the year. If we took the correlation between EUR/USD and the yield differential at face value, that would have the Euro peaking close to 1.2000 but that seems unlikely to us; relative growth trends are likely to be an anchor.
However, we remain confident enough that a) the ECB will ease more slowly than the Fed and b) rate differentials will matter as much as perceived growth differentials, that EUR/USD will continue its slow-motion recovery and make a new lower cyclical high at some point this year (but well before the US election).
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