Another ECB pivot could support EUR, for now
The improvement in European economic data has been consistent with the European Central Bank’s forecast for a gradual growth pick-up;
this is also likely to be the case with today’s European PMIs, implying little urgency for the Governing Council to introduce new dovish elements to its policy statement. Furthermore, the lack of a tapering signal in yesterday’s FOMC message should ease the pressure on the ECB to emphasize the contrast of its policy with the Fed’s. Given the recent tendency for euro zone short rates to pivot from one ECB announcement to the next (see chart), higher yields and a stronger EUR could be the outcome this month. That said, our European economists’ call for a sizable inflation deceleration and an ECB refi rate cut later in the year remains intact, suggesting that EURUSD rallies to the June high of 1.3417 represent a potential selling opportunity.
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BNP Paribas