EUR/USD: Risks remain titled to downside – MUFG

The EUR has fallen to fresh year-to-date lows against the USD over the past week. Economists at MUFG Bank believe that risks remain skewed to the downside for the EUR in the near-term.

ECB to keep pushing back against earlier rate hike expectations

 “The strengthening global recovery and higher inflation pressures are encouraging market participants’ to price in relatively more policy tightening outside of the eurozone. We believe there is scope for yield spreads to continue moving against the EUR.”

“We expect the ECB to maintain a similarly dovish view in December as they continue to push back against expectations for hikes from as early as next year.”

“Investor sentiment towards the EUR has been undermined by a growing list of concerns (the eurozone economy is expected to prove more sensitive both to the negative energy price shock and real estate driven slowdown in China, while COVID-19 cases have risen sharply again recently in a number of eurozone countries) that are also encouraging the build-up of EUR shorts.”