ECB likely done easing – BBH

EUR/USD holds above 1.1500 as solid Eurozone business activity supports an extended ECB pause, while market pricing still factors in potential rate cuts, BBH FX analysts report.

EUR/USD supported versus Fed policy

“EUR/USD is holding above support at 1.1500. Eurozone business activity remains solid in November and supports the case for an extended ECB pause. The composite PMI printed at 52.4 in November (consensus: 52.5) down slightly from a 29-month high at 52.5 in October. The services PMI unexpectedly increased to an 18-month high at 53.1 (consensus: 52.8) vs. 53.0 in November while the manufacturing PMI dipped to a 5-month low at 49.7 (consensus: 50.1) vs. 50.0 in October.”

“The regional breakdown showed the German composite PMI eased to 52.1 (consensus: 53.5) from a 29-month high of 53.9 in October. In contrast, France’s composite PMI recovered more than expected to a 15-month high at 49.9 (consensus: 48.1) vs. 47.7 in October driven entirely by the service sector.”

“The swaps market continues to price-in about 40% odds that the ECB delivers one more 25bps cut in the next 12 months to 1.75%. We think the ECB is done easing as policy is close to neutral while the Fed has more cuts in the pipeline (84bps price in the next 12 months) given that policy is still restrictive. Bottom line: relative ECB/Fed policy stance suggests EUR/USD should hold above its 200-day moving average, currently at 1.1405.”