US and EU: Inflation divergence is narrowing – CIBC

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Andrew Grantham, an analyst at CIBC, points out that inflation rates in the US and the Eurozone are converging and he explained that could lead to the ECB normalizing interest rates before year-end, a positive factor for EUR/USD. 

Key Quotes: 

“The divergence between key core inflation measures in the EZ and US has narrowed slightly from previous extremes, thanks to a modest easing stateside and marginal pick up in Europe.”

“That should also mean that the divergence in monetary policy can come down from extremes. After the one Fed hike that we expect this year, the US will go on hold and before year-end the ECB could have started slowly normalizing interest rates. That will provide the next significant leg higher for the euro against the greenback.”

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