EUR/USD TO GRIND HIGHER AS FED-ECB POLICY GAP IS SET TO NARROW – SOCGEN

Economists at Société Générale analyze EUR/USD outlook ahead of a monumental week for monetary policy decisions.

ECB statement and press conference to guide toward another 25 bps in July

The ECB appears to be a more straightforward affair compared to the Fed. A 25 bps increase in all rates is our house (and the street’s) view and would bring down the spread vs Fed funds to 175 bps. So in theory this would augur well for higher EUR/USD.

The ECB statement and press conference are likely to guide toward another 25 bps in July. September is a much closer call, but the ECB will be tight-lipped on what happens after August and will have three more CPI releases when it reconvenes after the summer break.

The more downbeat credit conditions survey and optimism among households that inflation is subsiding could temper the hawkish ECB message and frustrate EUR/USD bulls.