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Euro rally stalls as spreads track yield expectations vs US dollar
Scotiabank expects the market to price roughly 24 bps of additional ECB tightening in September and 40 bps by year-end.
Scotiabank strategists Shaun Osborne and Eric Theoret said the euro is slightly softer versus the US dollar, noting that the currency’s rally from late July has largely stalled as price action continues to track moves in yield spreads. The outlook still reflects market pricing for a hawkish European Central Bank path. Scotiabank said roughly 24 bps of tightening is expected in September and about 40 bps by year-end, which is helping keep sentiment constructive.
In the near term, the strategists pointed to EUR support in the mid-1.16s, describing a short term floor there. They also flagged the potential for more meaningful support closer to the 200 day moving average around 1.1633.
Scotiabank said sentiment toward EUR strength remains modestly positive, citing risk reversals that show a small premium for EUR upside. It also said the pair’s gains have struggled to extend much above 1.1700, leaving the rally without follow through.