Analysis-Recovering euro keeps dollar 'gorilla' from scuppering ECB rate outlook

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Analysis-Recovering euro keeps dollar 'gorilla' from scuppering ECB rate outlook
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Pro-Palestinian encampment at Dalhousie University - May 13, 2024 | SaltWire #news #halifax #protestLONDON/MILAN - The euro has resisted falling to parity with the dollar for now, thanks to a rosier economic backdrop, to the relief of European Central Bank policymakers who could be struggling to detach themselves from the Federal Reserve's monetary policy outlook.

"That is also a cause for relief for the ECB and a reason for them to be more relaxed as well. It’s almost as if their ducks have lined up quite nicely so far." That offers a less negative picture on the euro than purely looking through the lens of the dollar in that it neutralises some imported inflation.Still, a sustained drop in the euro could boost import prices and rekindle inflation, thereby limiting the ECB's scope to cut rates.

Other factors such as a spike in the oil price, or a deterioration in geopolitical tensions could undermine the euro area by again hurting the growth outlook and magnifying the inflationary effect of a weaker currency. The euro last hit parity around August 2022, when the rate gap between the two central bank rates was 238 bps.

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