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- EUR/USD has more downside in store and ECB decision does not change that – Danske Bank
EUR/USD has more downside in store and ECB decision does not change that – Danske Bank
The European Central Bank (ECB) decided to hike all policy rates by 75 bps. Given that the decision was largely as anticipated, there was little reaction in EUR/USD. Economists at Danske Bank expect the pair to continue moving downward.
75 bps, but 75 bps is not the new norm
“Lagarde made it clear that a 75 bps hike should not be assumed to be the new normal. We do not change our rate path call, which remains: 50 bps in October and 25 bps in December, but we remain open to further hikes in 2023 should the economy prove strong enough and inflation expectations remain too high.”
“Growth is heading lower, but the ECB is not yet forecasting a recession. Inflation risks remain on the upside and we remain sceptical that rate hikes will do much to solve the ECB’s inflation problem in the near term.”
“We continue to see further downside risk with a 12M target of 0.95, with medium-term valuation drivers more persistently weighing on the cross in the quarters ahead.”
“Until we see a broad rebound in global growth, a capex boom, a sharp drop in energy prices and/or the Fed cutting rates, we think EUR/USD has more downside in store and today's ECB decision does not change that.”
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