EUR/USD heading towards parity in 12 months – Danske Bank
|The European Central Bank held its meeting on Thursday. It announced the end of the purchase program (APP) by July 1st, kept interest rates unchanged as expected, and said it intends to raise rates in July by 25bp. Analysts at Danks Banks point out risks are still skewed for more than one 50bp rate hike, but with the current very uncertain outlook, we expect the economic outlook will dampen the medium inflation pressure, paving the way for ‘only’ 25bp hike. They still see the EUR/USD pair moving toward 1.00.
Key Quotes:
“For EUR/USD, ECB is provided some well-sought after clarity as to the entire likely policy path in to and including Q4. Further, this guidance appear quite in line with the market’s view. We are seeing a mild widening of credit spreads (higher Italian rates vs Germany) and during the press conference, and EUR/USD unwound some of the initial strength – likely due to the credit/risk aversion channel. This is well in line with the observation that FX strength upon hawkish central banks has faded rather fast and we have recently seen that in SEK, AUD and Eastern Europe. Also, EUR strength on ECB guidance has faded multiple events in the last 3-6 months.”
“In our view, this ECB meeting confirms our view that rate hikes are a global phenomenon intended to make markets rotate towards less risky positions and a lower EUR/USD spot is part of such a rotation. For Europe, widening spreads is also crucial to why EUR/USD heads south as we price in higher rates. Looking ahead, we continue to see EUR/USD towards 1.00 in 12m.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.