BNY analysis highlights that real rate dynamics and weak Eurozone demand are offsetting aggressive ECB policy expectations for EUR/USD.
The Euro remains under pressure despite aggressive European Central Bank rate hike pricing, as real rate headwinds and growth concerns limit gains. BNY’s analysis notes that tighter policy could swiftly shift to expectations of forward easing, capping Bund yields and undermining EUR performance.
Eurozone services PMIs signal weakening demand, while breakeven inflation fails to rise meaningfully. The lack of upward momentum in Bund yields, coupled with asset rotation out of equities, is further pressuring the currency. Domestic investors are increasingly hedging overseas investments, reducing EUR holdings.
The analysis questions whether ECB hawkishness can sustainably support the Euro, given the fragile economic backdrop and potential for rapid policy pivots.