Despite hopes for fiscal support from the upcoming German election, the EUR/USD pair is expected to remain bearish. The latest decline in the German Ifo index and market consensus on a dovish ECB policy contribute to this outlook. The text also discusses UK CPI data and its impact on the EUR/GBP pair.
The latest input to the eurozone’s growth story –another decline in the German Ifo index– should keep market’s dovish tendency in European Central Bankpricing well intact, even if consensus is building that the upcoming German election will generate some degree of fiscal support . Ultimately, a retightening in the very wide Atlantic spread seems unlikely in the near term, ING’s FX analyst Francesco Pesole notes.
Upcoming German election may generate some degree of fiscal support\EUR/USD has continued to hover around the 1.050 gravity line, and we see a good chance this will remain the case into the end of the month. Still, we are comfortable with retaining a negative bias on the pair into the new year, where the start of Trump’s second term in officeshould offer multiple reasons to stay bearish. \In the UK, CPI data released this morning showed increase from 2.3% to 2.6% year-on-year, with the month-on-month slowdown moving from 0.6% to 0.1%, in line with market consensus. Our core services metric, which strips out all the volatile stuff and also rents/hotels(i.e., elements that the Bank of Englandis less bothered about) did tick higher from 4.5 to 4.7%.\Our view on EUR/GBP remains generally flat for the near term, even if an eventual acceleration in BoE easingnext year can offer some pockets of support
EUR/USD German Election Fiscal Support Dovish ECB CPI Data Boe Easing
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