The euro is likely to weaken as focus for the currency centers on easing inflation pressures, with a secondary focus on slowing growth, NatWest Markets said. “Both play euro negative against the dollar and on the crosses.”
The latest eurozone inflation data, which were much lower than expected, suggest that the European Central Bank needs to recalibrate its growth and inflation forecast ahead of the Dec. 14 policy meeting, NatWest said. NatWest expects the ECB’s interest-rate cuts to come sooner than many expect.
“With recent dollar weakness not justified, we see this as negative for EUR/USD.”
NatWest also said the dollar fell steadily through November, a move which came “faster and more clearly” than expected.
“For both the dollar weakness in November and the U.S. Treasury rally, we wonder if the move has gone too far too fast even if it does jive with how we see 2024 eventually playing out,” NatWest said.
On the dollar side, even more so than in Treasurys, NatWest said it was skeptical of chasing the move in the near term because of the broader growth outlook.