Week Ahead: Will Draghi Hurt The EUR Or May Sink The GBP?

Credit Agricole CIB FX Strategy Research notes that one theme that has dominated FX markets in recent weeks has been the return of the ‘strong EUR’, arguing that the one thing that seems to be standing in the way of further EUR-gains in the near term is next week’s June ECB meeting.

In that regard, CACIB notes that FX investors are asking whether the latest EUR-appreciation will trigger any verbal intervention by the Governing Council, similar to action taken in mid-2015.

“Indeed, failure to do so would trigger FX gains that could hurt the Eurozone inflation outlook, complicating any plans for removal of the monetary stimulus. Next to jawboning the EUR, Draghi may further opt to cloak the improving policy outlook in a dovish message.

…All in all, we expect the downside risks for EUR to increase around the June’s ECB meeting,” CACIB argues. 

Turning to GBP, CACIB notes that ahead of the 8 June election polls are suggesting that PM May’s Conservative party are on course to extend their parliamentary majority; and if confirmed, the outcome should be seen as a short-lived boost to GBP only.

Indeed, concerns about a hard and even disorderly Brexit should resurface before long and, coupled with a worsening outlook for the UK, should soon erode the appeal of any long-GBP positions. Failure by the Tories to secure a commanding majority remains a non-negligible risk that will darken the already gloomy outlook for GBP,“ CACIB adds.

Source: Credit Agricole CIB Research

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