EUR: German IFO Data and Central Bank Hawkishness Impact Euro/USD Range Trade
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EUR: German IFO can keep the euro subdued
Friday saw a soft set of PMIs across Europe, where the services sector dipped worryingly towards the gloom already felt in the manufacturing sector. This data set knocked about 50 pips off EUR/USD at the time of the release. Germany's June IFO today could also see a downside surprise and prompt another dip in EUR/USD back below 1.0900.
On the surface, the narrative of central bankers needing to keep higher rates for longer is not a good one for the pro-cyclical euro. However, a hawkish ECB has provided some defence against high US interest rates and has driven EUR/USD back above 1.09 – it will also firm up expectations of at least two more 25bp hikes (in July and September) and perhaps push back against some of the modest easing expected in 2024.
This environment tends to favour the continuation of a 1.0850-1.1000 range trade for EUR/USD and the goldilocks scenario of soft landing/softer Fed policy looks to be delayed further.
Elsewhere this week look out for a Riksbank rate meeting on Thursday. Unless it delivers a hawkish hike, EUR/SEK will head back above 11.80.
