EUR/USD holds above the 1.06 level. However, economists at Société Générale believe that the outlook for the pair looks tricky in the coming months.
Outlook for higher rates is positive for the Euro vs lower yielders
“For FX, the outlook for higher rates, in theory, is positive for the Euro vs lower yielders like the Yen (less so for CHF) as we observed last week and for EUR/commodities as equities struggle.”
“The correlation with risk assets means the outlook will be driven not exclusively by rate differentials. If stocks/credit panic because Euro (and US) rates are going much higher and stoke fears of a recession, then EUR/JPY and EUR/CHF should drop back. It is the opposite for EUR/commodities.”
“EUR/USD is a tougher call. The pair has weakened every year in January, February and March since 2019. Volatility in periphery bonds coupled with the resilience in the US labour market could interrupt the upward trajectory.”