This month, the Dollar has nearly gained 3% against the Euro. But relative rate trends are expected to favour the shared currency again in the coming weeks, Kit Juckes, Chief Global FX Strategist at Société Générale, reports.

When will a lack of credit growth become a problem for Europe?

“The front end is priced for the ECB to hike by 50 bps more than the Fed in the next six months, and while that’s an increase of only 35 bps from what was priced in at the end of January, we expect to see relative rate trends start to favour the Euro again in the coming weeks.” 

“If there’s a cloud on the horizon, it comes in the form of slowing European money supply data. M3 growth slowed to 3.5% YoY and overall credit growth is running at 3.1% YoY, down from 6.2% this time last year. There’s a big overhang of excess credit floating around, but in real terms, we’re now firmly in negative territory and if we stay there, darker clouds will creep over the 2024 growth outlook. Watch that space.”