MUFG analysts say persistent energy costs keep Eurozone inflation risks high, supporting further ECB tightening and EUR strength.
EUR/USD may gain from a weaker USD and the European Central Bank’s hawkish stance, driven by elevated LNG prices. Liquefied natural gas costs remain 40% above pre-conflict levels, sustaining inflation pressures in the Eurozone.
While Brent crude has retreated to pre-conflict levels, LNG prices have not followed, keeping energy-related inflation risks alive. The ECB is expected to monitor these developments closely, maintaining a bias toward additional rate hikes.
Recent US payroll data and falling US yields have eased Fed rate hike expectations, potentially weakening the USD further. The rates curve still prices in another ECB hike, supporting EUR gains.