ECB’S MORE OPEN-MINDED VIEW OF THE FUTURE THAN THE FED SUPPORTS THE EURO – COMMERZBANK

Economists at Commerzbank discuss ECB and Fed rate expectations and how could impact the EUR/USD pair.

FX market rewards flexibility

The ECB appears to be taking a more open-minded view of the future than the Fed – which the FX market is rewarding in view of the still uncertain inflation outlook. Whatever happens — whether stubbornly high inflation momentum justifies further rate hikes or, as our economists expect, hikes will end in July — there is a likelihood that the Fed will have to correct itself thus admitting an error in judgement, whereas the ECB is well prepared for any scenario.

25 bps more or less do not matter, what matters more than anything is how sensitive to inflation risks a central bank is. And in this respect, the ECB seems to be in the lead at present. As a result, EUR/USD is moving towards our June target of 1.10.