The EUR/USD pair remained steady following the decision of the European Central Bank to raise rates by 50 basis points on Thursday. Analysts at Danske Bank see the pair at lower than current levels on a three to six months horizon.
Limited market reaction to the ECB
“Despite the large uncertainty with respect to the rate decision, the reaction in FX markets was remarkably limited. We entered the meeting with a fundamental predisposition of wanting to sell EUR/USD rallies on a 50bp hike but the cross hardly reacted with the FRA curve flattening upon announcement.”
“Looking ahead, systemic risk fears look set to dominate price action among majors. Our bias remains for systemic fears to subside over the coming weeks, but we humbly acknowledge the high sensitivity to negative news, which leaves us side-lined with no high-conviction calls near term. On a 3-6M horizon, we still pencil in a lower EUR/USD compared with current spot levels.”
“We expect the ECB deposit rate to peak at 4%, with a 50bp rate hike in May followed by a 25bp hike in both June and July.”
