Euro: Fiscal risks limit gains against US Dollar – BBH

Weaker-than-expected Eurozone PMI data, though still pointing to robust growth, have left EUR/USD trading defensively below 1.1200, according to Brown Brothers Harriman (BBH) strategist Elias Haddad. With inflation above target and growth proving resilient, the ECB has scope for further rate rises, limiting policy divergence with the Fed. Haddad cautions, however, that France’s fiscal difficulties could drive EUR/USD towards 1.1000.

Euro stays on the defensive as PMI disappoints

"EUR/USD is on the defensive under 1.1200. The Eurozone October PMI was weaker than anticipated, but still indicative of robust growth. The composite PMI fell to a four-month low at 51.9 (consensus: 52.7) vs. 53.1 in September."

"The details showed both services and manufacturing activity slowed, with French private sector output moving back into contraction."

"Above target Eurozone inflation and a resilient growth outlook give the ECB scope to deliver additional hikes. The swaps curve implies nearly 75bps of tightening to 3.25% in the next twelve months. That limits policy divergence with the Fed and the drag on EUR/USD."

"However, France’s fiscal troubles can drive EUR/USD down to 1.1000."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)