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EUR/USD holds below 1.1400 as hawkish ECB outlook offsets oil risk

Brown Brothers Harriman says EUR/USD is recovering from its slump but remains under 1.1400, with markets pricing about 75 bps of additional ECB tightening over the next year.

Reported · Written up by our desk · Major Pairs

Brown Brothers Harriman’s Elias Haddad said EUR/USD has regained part of its recent decline but is still trading below 1.1400. The improvement is being supported by a stronger-than-expected Eurozone July PMI, while the outlook for tighter ECB policy helps limit downside.

Haddad pointed to the Eurozone composite PMI rising to a five-month high of 51.9, above the consensus estimate of 50.2 and the prior reading of 50.0, with services activity recovering and manufacturing expanding faster. He added that markets are pricing roughly 75 bps of ECB tightening over the next year, which is seen as capping euro weakness rather than driving a sustained rally.

The note also highlights that higher oil prices are keeping growth risks skewed lower and inflation risks higher, which the firm says limits the scope for EUR/USD relief moves. Separately, it cites the ECB’s unanimous decision to hold the policy rate at 2.25%, with swaps implying nearly 75 bps of tightening to bring the policy rate near 3.00% over the following 12 months.

BBH further expects the ECB to lift rates by 25 bps at its September 10 meeting, which it says is already largely priced in at about 90%. In that framework, the projected policy rate would sit near the top of the ECB’s estimated neutral range of 1.75% to 3.00%.

Latest closeEUR/USD 1.138 ▼0.2%

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