EUR/USD: Policy action to support the euro – MUFG

During March the euro weakened versus the US dollar, moving from 1.1243 to 1.1098. Economists at MUFG Bank see the European Central bank (ECB) turning more hawkish and while this would be only endorsing current market pricing, it will help provide support for the euro.

EUR at a turning point 

“While the inflation surge is more of an energy-specific influence than in the US or the UK (over 50% of the entire YoY increase is energy alone) we believe it will become increasingly difficult for the ECB to ignore and suspect the ECB could turn more hawkish and commence rate hikes before December.” 

“We may also see fiscal support adding to reasons for sooner action by the ECB.”

“The failure of EUR/USD to sustain levels below 1.10 indicates strong support from here.”