EUR/USD: Rally to run out of steam as the pair moves toward the 1.1000 level – MUFG

The US Dollar weakened modestly further yesterday. Nonetheless, economists at MUFG Bank expect the EUR/USD rally to fade as the pair nears the 1.10 mark.

It is difficult to envisage the current divergence in policy expectations being sustained

“It is difficult to envisage the current divergence in policy expectations being sustained if the data from the US remains resilient.”

“The OIS market currently implies 50 bps of hikes by the ECB by September while the market is 80% priced for a 25 bps rate cut from the Fed by then. Without further banking sector turmoil, data flow will dictate the sustainability of that degree of divergence in policy expectations and based on the consumer confidence data there is a greater risk of that divergence closing which could see EUR/USD again run out of steam as we move toward the 1.1000 level.”