EUR/USD Rate Rebound Vulnerable to Dovish ECB Account

EUR/USD

Fundamental Forecast for Euro: Bearish

Euro Talking Points

EUR/USD quickly approaches the monthly-high (1.1500) as fresh comments from Federal Reserve officials sap bets for an extended hiking-cycle, but the European Central Bank’s (ECB) account of the October meeting may undermine the recent advance in the exchange rate as the Governing Council remains in no rush to remove the zero-interest rate policy (ZIRP).

Remarks from Federal Reserve Vice-Chairman Richard Clarida suggest the central bank remains hesitant to implement above-neutral interest rates with the world economy showing ‘some evidence that it’s slowing,’ and the Federal Open Market Committee (FOMC) may continue to project a longer-run benchmark interest rate of 2.75% to 3.00% at its last meeting for 2018 as ‘risks to the economic outlook appear roughly balanced.

However, the FOMC may have little choice but to respond to the shift in U.S. trade policy as higher tariffs inflate input prices, and the committee may temporarily implement above-neutral interest rates in an effort to keep inflation around the symmetric 2% target.

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