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- There should always be a degree of EUR skepticism – Commerzbank
There should always be a degree of EUR skepticism – Commerzbank
Yesterday's GBP reaction to the surprisingly large rate hike should be a lesson to those who are overly bullish on the EUR, in the opinion of economists at Commerzbank.
Higher EUR/USD rates in the second half of the year
The key point is that we expect positive ECB rate surprises relative to market expectations. That's the similarity with the BoE yesterday. And I will admit that this may be EUR positive for now. That's why we expect even higher EUR/USD rates in the second half of the year than we've seen recently. But at the same time, there should always be a degree of EUR skepticism. Positive rate surprises are not always positive for the currency. Yesterday's GBP reaction teaches us that.
Similar to what happened with the BoE yesterday, the market is likely to close one day for the ECB: With high interest rates, it is only following the inflationary trend, not controlling it. That would be bad for the Euro. And why? Because a central bank that only reacts to inflation can stop explosive inflationary developments, but it cannot prevent such inflationary outbreaks from happening again and again. This increases the inflation risk premium that the currency market demands to hold such a currency. That is, it weighs on the exchange rate.
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