EUR trading higher on flows, says Jane Foley, Senior FX Strategist at Rabobank, as she discusses Central banks, inflation, and the EUR carry trade.
Central banks acting, but still no inflation
Foley notes that FX market remains interesting with the inflation theme back in focus. She says the market is expecting a very weak US CPI data ahead.
On ECB’s mandate, she sees the central bank missing its inflation target and adopting a dovish tone ahead.
Flows guiding EUR higher
Foley explains the funding currency behaviour of the EUR and how the short covering led to the climb in the single currency. She adds that the EUR lacks the fundamentals to be used as a funding currency and this strength in the euro is bad for the reflationary action taken by the ECB, and believes that the central bank will take steps to counter this.
She further comments that central banks have tried to keep rates lower and still haven’t succeeded to push inflation higher.
She adds how lower petrol prices have failed to contribute to an increase in spending,
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