EUR/USD has been hovering below 1.19 as investors are concerned about growth prospects. In the view of economists at HSBC, the contrast in Federal Reserve (FEd) and European Central Bank (ECB) policy narratives could be enough for EUR/USD to challenge the 2021 year-to-date low.
Balance of risks is still primed for EUR weakness
“We look for EUR/USD to challenge the lows for the year in the coming weeks. This is not because we expect new developments but simply that the current themes will continue to chip away at the support for the EUR.”
“Both the global reflation theme and the Eurozone’s vaccination roll-out prospects are now priced in.”
“The Eurozone’s portfolio outflows remain relentless. The ECB has strengthened its rates forward guidance following the outlook of the strategic review.”
“Our economists note that the reopening effects on inflation seem less in the Eurozone than in the US or the UK. Eurozone inflation data, out on 30 July, is likely to show core inflation still far from target.”
“The balance of risks is still primed for EUR weakness over the summer doldrums.”