Euro: ECB caution and France risk in focus – BBH

EUR/USD could face further downside as France’s fiscal difficulties and bond market strains pose a key risk, according to Brown Brothers Harriman’s (BBH) Elias Haddad. The European Central Bank (ECB) is expected to leave rates unchanged at 2.50%, although markets continue to price in a strong probability of a rise to 2.75% in December. Subdued core inflation and tighter financial conditions support the case for waiting.

Will French turmoil eclipse an ECB rate hold?

"The ECB is widely expected to keep rates on hold at 2.50% after September’s 25bps hike. Contained Eurozone underlying inflation and tighter financial conditions give policymakers scope to wait."

"Nevertheless, resilient economic activity and inflation projected to remain above target for an extended period keep a December rate hike to 2.75% firmly in play (75% priced in)."

"France’s bond market turmoil is likely to dominate ECB President Christine Lagarde’s press conference."

"Reassurance that the ECB stands ready to contain unwarranted contagion can cushion EUR, but France’s fiscal troubles leave EUR/USD vulnerable to a decline toward 1.1000."

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