EUR/USD is not so far away from 1.0900, the level it was trading around before the last dovish ECB meeting. Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, analyzes the pair’s outlook.
An inflation risk premium on the Euro is appropriate
The point is that the ECB may not have the room to cut rates too quickly and that an initial cut in March or April may not actually happen. However, one negative factor for the EUR remains, and that is the impression that a large faction within the ECB Governing Council is really dragging its feet and will later take the first opportunity to push for rate cuts. Perhaps too soon, depending on the situation.
I therefore continue to believe that an inflation risk premium on the Euro is appropriate. I would therefore be critical of an immediate return of EUR/USD to the area above 1.0900.
