Euro: How are France risks and ECB expectations keeping EUR/USD steady? – Commerzbank

The Euro (EUR) remains under pressure from political and rating risks in France and cautious expectations for the European Central Bank (ECB), although most of these concerns are already priced in, according to Antje Praefcke at Commerzbank. With markets now pricing in an ECB rate hike in December and further tightening next year, those expectations could be scaled back. Praefcke expects EUR/USD to remain relatively steady into next week, but sees downside risk should French protests intensify and curfews fail to have the intended effect.

How will France and the ECB influence the Euro?

"The situation in France is an underlying factor weighing on the euro. More protests are expected this weekend. Moody’s could also be the last rating agency to downgrade France on Friday. And the ECB is unlikely to deliver a hawkish surprise next week. The market is no longer pricing in a rate hike for October, but is pricing in one for December and slightly more than one additional hike by the middle of next year. Here, too, the market may have to adjust its expectations should the ECB sound cautious regarding the future interest rate path, which would put the euro under downward pressure."

"In general, however, I think a great deal of negative news is already priced into the euro, particularly with regard to France; at the same time, the euro zone purchasing managers’ indices are likely to remain stable on Friday, so based on the current news landscape, I expect little new downward pressure on the euro. On the other hand, of course, a resolution to France’s debt problem or a credible budget proposal is unlikely, so there is also no reason to bet heavily on a recovery of the euro."

"At least for the coming days leading up to the central bank meetings in the middle of next week, I expect relatively stable EUR/USD rates, as there are no compelling reasons to favor one currency over the other. After all, everyone has their own cross to bear. Nevertheless, I see a slightly higher risk that the euro could see a short dip again if protests in France escalate, especially if the curfews imposed fail to have the desired effect."

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