Eurozone Outlook: Gradual Appreciation of EUR/USD Supported by Tight Labor Market and Hawkish ECB Stance

In light of the latest data from the Eurozone, market participants are keen to gain insights into the future forecast for the euro (EUR). We turn to Roman Ziruk, Senior Analyst at Ebury, to provide valuable perspectives on the current economic landscape and the potential trajectory of the EUR.

Despite a marginal downside surprise in core inflation figures for June, the Eurozone's core inflation remains persistently high. This, coupled with the tightness of the labor market and the European Central Bank's (ECB) hawkish stance, as reiterated by President Lagarde, supports the view that the bank's tightening cycle will be extended. Ziruk predicts that there will be at least a couple more interest rate increases and no rate cuts in the near future. 

FXMAG.COM:

 In light of the latest data from the Eurozone, what forecast can you make for the EUR?

Roman Ziruk, Senior Market Analyst:

Although core inflation in the Eurozone surprised marginally to the downside in June, it remains stubbornly high. This, combined with the tightness of the Eurozone’s labour market and the ECB’s hawkish stance, reiterated by President Lagarde at Sintra last week, supports our view that the bank’s tightening cycle will last longer, rates will be increased at least a couple more times and no rate cuts are in the offing anytime soon.

Although some of the recent economic data, particularly the PMIs, have been disappointing, we maintain our view that the scale of the slowdown in the Eurozone need not be very significant, nor do we expect a full-year recession in 2023. Therefore, we continue to pencil in a gradual EUR/USD appreciation in the coming quarters to 1.12 at year-end and 1.15 at the end of 2024

 

 

 

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