Euro faces ECB caution and French risk – BBH

With the European Central Bank (ECB) expected to leave rates at 2.50%, markets continue to price in a strong probability of a rise to 2.75% in December, according to Brown Brothers Harriman’s (BBH) Elias Haddad. Subdued core inflation and tighter financial conditions support a pause, but France’s fiscal difficulties and bond market pressures stand out as a key risk, potentially exposing EUR/USD to further losses.

French turmoil casts shadow over expected ECB 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.)