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Euro value case gains traction as ECB stays cautious, BNY says
BNY expects the ECB to remain on hold and ties euro upside to PMI and earnings confirming stable growth, with CPI projected to fall below 3% for the year by the September forecast.
BNY’s Geoff Yu said euro assets are starting to show an emerging value case, as the European Central Bank holds policy steady and easing inflation reduces pressure for additional tightening.
Yu cautioned that the value argument depends on confirmation that activity remains stable, pointing to upcoming European PMIs and corporate earnings as key signals for whether growth can support the trade.
In his outlook for the ECB meeting on Thursday, July 23, Yu said the Governing Council is not presenting a unified front, with some members questioning whether second-round effects are present. He also flagged a “severe” tail-risk scenario, adding that if the ECB does not signal a clear risk of that severe outcome, the chance of further hikes is low.
BNY expects European low-yield exposures to struggle in the current environment, while high-yield FX retains appeal amid stagflation risks. Yu said it may take until September for clearer confirmation, with ECB forecasts needing to push CPI below 3% for the year, and noted that financial conditions are not yet supportive of a rotation away from Asia Pacific and the United States while stagflation risk remains elevated.