The coming monetary policy phase should be rather favorable for EUR

The Euro came under considerable pressure after Thursday's November inflation data. Economists at Commerzbank analyze EUR outlook.

How quick or slow will the ECB be this time?

If the inflation shock is actually ‘through’ worldwide, there should be interest rate cuts in several currency areas. But this should not actually be bad news for the Euro.

The ECB's interest rate policy is typically rather slow and cautious. Such a monetary policy style in a phase of general interest rate cuts should have an equally EUR-positive effect if the ECB central bankers follow their G10 colleagues (especially the Fed) with some delay in the coming year – this time in the direction of lower interest rates. On the whole, the coming monetary policy phase should therefore be rather favorable for EUR exchange rates.

However, the market sees things differently. It has already fully priced in the first ECB interest rate cut for next April, while it is not pricing in the first Fed rate cut until next summer (at least not with a high degree of confidence).

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