Risk Of A More Aggressive ECB Tone On A Further EUR Upside - Credit Agricole

The EUR has been well supported of late. This appears to be on the back of stable ECB rate expectations and reduced sensitivity to risk sentiment. Regardless of inflation expectations as measured by 5Y inflation swaps being close to historic lows, we see limited scope for the ECB to consider a more dovish monetary policy stance any time soon. This is especially true when it comes to interest rates.

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It cannot be ruled out that increased downside risks to prices on the back of a further appreciating currency may ultimately trigger a change in tone. However, for that to happen more considerable upside may be needed.

When it comes to majors such as EUR/USD, however, it will largely be down to Fed rate expectations to drive the pair. In that respect Fed Chair Yellen’s speech at the Jackson Hole Symposium will be key.