HSBC strategists see EUR/USD at risk of moving lower as the European Central Bank (ECB) maintains a cautious, data-dependent stance and refrains from signalling further rate hikes. They note that Euro (EUR) support from higher yields is fragile, while weak eurozone growth, rising energy costs and deteriorating terms of trade could increasingly weigh on the Euro against the US Dollar (USD).

Euro support seen as increasingly fragile

"On 23 July, the European Central Bank (ECB) held rates at 2.25% and reiterated a data-dependent, meeting-by-meeting stance."

"This message underwhelms and weakens support for EUR/USD."

"EUR/USD has been remarkably stable over the last month propped up by higher yields as markets mark up inflation and tightening expectations in response to rising energy prices."

"But that’s a fragile kind of support and only lasts as long as the ECB is perceived as prepared to deliver."

"Without a firmer commitment to support interest rates, we think EUR/USD is likely weaken as investors refocus on growth downside and terms-of-trade risks."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)