Economists at Crédit Agricole explain why they see downside risks for EUR/USD in the near-term.

Fed rate hike expectations are in for a rebound

“We continue to see some downside risks for EUR/USD in the near-term. In particular, we think that Fed rate hike expectations are in for a rebound after they have been pared back far too aggressively. We think that abating banking sector risks and evidence on Thursday and Friday that US inflation remains very ‘sticky’ could be the trigger of a renewed move higher in US rates and yields.” 

“Potential downside surprises from the Eurozone HICP data on Friday could force investors to reassess their stance on the ECB’s policy from here. To the extent that this leads to lower EUR/USD nominal and real rate spreads, it should add to the downside risks for the EUR.”

See – EU HICP Preview: Forecasts from seven major banks, headline inflation falls sharply, but core remains high