UBS shared insights on the Euro’s potential trajectory, emphasizing the significance of upcoming economic indicators over the European Central Bank (ECB) meeting held earlier this week.
The market has already factored in at least 150 basis points of rate cuts from the ECB over the next 12 months, but UBS suggests that the ECB President Christine Lagarde’s press conference could introduce volatility, especially if she addresses the risk of future US tariffs or negative economic impacts in France.
UBS anticipates that more substantial cues for the Euro’s direction will likely come from data later in December rather than the recent ECB meeting. Specifically, the preliminary December PMI data due on December 16, and France’s Insee survey scheduled for December 19, could influence market expectations.
Weakness in these forward-looking indicators might lead to a reduction in forward inflation expectations and potentially more aggressive market bets on ECB rate cuts.
The firm maintains a short position on EURJPY, indicating a bearish outlook on the Euro against the Japanese Yen. UBS also holds a consistent bearish stance on EURGBP, citing no reason to deviate from the market’s expectations of three 25 basis point rate cuts from the Bank of England in 2025.
UBS notes that unless there’s a significant external shock, such as a trade war, inflation pressures within the UK economy may restrict the ability to implement rate cuts.
UBS’s long-term target for EURGBP remains at 0.8200, but they acknowledge the possibility of the pair falling below this level.
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