Euro: ECB tightening expectations support pair – BBH
Brown Brothers Harriman’s (BBH) Elias Haddad expects Eurozone August headline Consumer Price Index (CPI) to accelerate to 3.3% year-on-year on higher energy, with core inflation steady at 2.5%.
Brown Brothers Harriman’s analyst Elias Haddad anticipates that Eurozone’s August headline Consumer Price Index (CPI) will speed up to 3.3% year-on-year, driven by higher energy costs, while core inflation stays at 2.5%. With inflation above the target and stronger growth, the European Central Bank (ECB) has the flexibility to adjust rates closer to the upper limit of its neutral range.
The swaps market has nearly fully priced in a 25 basis points rate hike to 2.50% by September 10 and an additional 60 basis points tightening over the next year. This scenario supports the EUR/USD exchange rate and diminishes the prospect of fresh lows beneath 1.1400.
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