What the desk is arguing
The desk sees the MoU as a strategic move that underscores the ECB's intent to strengthen ties with emerging economies, particularly India. This collaboration could lead to shared insights on inflation control and monetary policy adjustments, especially as both institutions navigate post-pandemic economic recovery.
The updated MoU, which replaces the previous agreement from 2015, indicates a growing recognition of the importance of international cooperation in central banking. With upcoming eurozone inflation data expected to show a year-over-year CPI increase of 2.5% in May, the ECB's dialogue with the RBI could provide valuable perspectives on managing inflationary pressures.
Where it sits in our coverage
Our current consensus target for EUR/USD sits at 1.075, with a range between 1.04 and 1.12. Notable targets from other firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns with jpmorgan, which supports a stronger euro outlook, while bofa presents a more cautious stance, reflecting concerns over potential economic headwinds. The desk's call is positioned towards the upper end of the consensus range, indicating a bullish sentiment on the euro relative to the dollar.
How other firms see it
Firms like jpmorgan and citi are aligned with the desk's optimistic outlook on the euro, citing the potential for stronger economic recovery in the eurozone. Conversely, bofa and deutsche express skepticism, focusing on the risks posed by persistent inflation and geopolitical tensions.
The trajectory of EUR/USD will likely be influenced by upcoming ECB decisions and the RBI's policy adjustments, particularly in light of the recent MoU. Additionally, the interplay between eurozone inflation metrics and the RBI's monetary policy stance will be crucial to monitor.
What the calendar says
With key inflation data for the eurozone scheduled for June 2, the market will be closely watching these figures to gauge the ECB's next moves. This data release could serve as a catalyst for volatility in EUR/USD, particularly in the context of the newly signed MoU and its implications for ECB policy.