The ECB’s shift to a ‘meeting by meeting’ approach portends EUR headwinds in the short-term, economists at CIBC Capital Markets report.

The ECB switches up its approach

The main takeaway from last week’s ECB decision? That the shift to a ‘meeting by meeting’ approach on decision-making is now underway.

Over the coming months, we expect to see more progress made on the inflation front. Not least as the recent ECB Bank Lending Survey made it clear that demand for loans from the private sector is declining. That should buttress the case that the ECB is close to the end of its cycle. Taken in conjunction with an underpriced Fed, we expect that selling pressure on the EUR should continue in the near-term – as net long positions continue to come under pressure. 

Over the medium-term, dips in EUR/USD should be bought as the hyper aggressive Fed QT program comes under greater scrutiny on the USD leg. 

EUR/USD – Q3 2023: 1.08 | Q4 2023: 1.11