EUR/USD Slips Ahead of US inflation Data and ECB

EUR/USD Slips Ahead of US inflation Data and ECB

 
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  • EC downgrades eurozone growth for this year and next
  • Will the ECB be deterred if their forecasts have similar downgrades?
  • EURUSD slips below key support ahead of US inflation data and ECB

The European Commission downgraded its forecasts for the EU this year and next, weighed down by much weaker growth in Germany.

The new forecasts won’t come as a major surprise and may even prove overly optimistic over time but they do come days ahead of the next ECB meeting and could tempt some policymakers into voting to pause the tightening cycle.

ECB policymakers will obviously be armed with their own forecasts when it comes to the vote but it’s likely their growth expectations will be revised lower on the basis of recent releases. While markets are currently pricing in a pause this week, around 60/40 at the time of writing, I’m probably leaning more toward a final hike before pausing in October.

It’s probably easier to justify a hike this week than it may be at the end of next month and I’m not sure there’s enough desire at the ECB to stop at the current rates. Weaker economic readings will probably drive a lively debate and they obviously won’t suggest, if they do hike, that it’s job done, rather more finely balanced. But they can’t ignore the progress in recent months, other economic indicators, and the lag effect of past moves.