The European Central Bank, as expected, rose the key interest rates by 50 basis points on Thursday. Analysts at Danske Bank see another 50bp hike in March and a 25bp in May. They consider that medium-term drivers indicate that the EUR/USD pair is overvalued.
“Markets took the ECB’s communication as a sign that the ECB is close to ending its hiking cycle, as bond yields rallied strongly. We judge that today’s communication reflects a very split governing council. We still expect the ECB to hike its policy rates by 50bp in March and 25bp in May.”
“In recent weeks, EUR/USD has defied the shift and sudden underperformance of Eurozone equities, which we otherwise deem to have been an important driver behind the EUR/USD rally since September (Eurozone equities overperforming during this period). Our tactical conviction on EUR/USD is not high, but we maintain a clear sell-on-rallies bias for the cross as we still think medium-term drivers indicate that EUR/USD is overvalued (and not undervalued).”
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