EUR Divergence

July 12 2021

With Interest rates diverging should we start to sell EURNZD?

Last night Christine Lagarde, the ECB President, speaking exclusively to Bloomberg, saying she is looking past the end of the Pandemic Emergency Purchase Program next March.

She told Bloomberg she expects the EZ economy to need further strong monetary stimulus. The ECB would likely rebrand or replace the PEPP with something similar in 2022.

When asked about an exit strategy, Ms. Lagarde could not be clearer “now is not the time to be talking about this”. This view will upset the Germans.

The ECB has made it a clear signal that there is going to be a divergence in interest rates. The EUR will likely come under increasing pressure from currencies of the more hawkish central banks.

My favorite would be the Reserve Bank of New Zealand, which is meeting on Wednesday to set monetary policy, no change is expected. The market may be looking for a further indication that rates will rise in November. So sooner or later, I would expect the EURNZD to head south.

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Published by Neil Callard

Forex Trader and Educator. 30 years trading experience, of which 20 years was market making in major currencies in large international financial institutions.

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