Euro: France risk and ECB caution converge – BBH

The European Central Bank (ECB) is expected to hold rates at 2.50%, notes Brown Brothers Harriman’s (BBH) Elias Haddad. Markets continue to price in a strong probability of a December increase to 2.75%. Subdued core inflation and tighter financial conditions support a pause. However, fiscal and bond market pressures in France stand out as a key risk, potentially exposing EUR/USD to further losses.

2.50% expected ECB hold: French turmoil takes focus

"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.)