UBS shared insights on the euro’s potential trajectory and highlighted the importance of the coming economic indicators at the European Central Bank (ECB) meeting held earlier this week.
The market has already priced in at least 150 basis points of ECB rate cuts over the next 12 months, but UBS suggests ECB President Christine Lagarde’s press conference could bring volatility, especially if she addresses the risk of future US rates or negative interest rates . economic consequences in France.
UBS expects that more substantive clues to the euro’s direction are likely to come from data later in December, rather than from the recent ECB meeting. In particular, the preliminary December PMI data due on December 16 and the French Insee survey scheduled for December 19 could influence market expectations.
Weakness in these forward-looking indicators could lead to a reduction in future inflation expectations and possibly more aggressive market bets on ECB rate cuts.
The company maintains a short position on , indicating a bearish view on the euro against the Japanese yen. UBS also has a consistently bearish stance on the US central bank, citing no reason to deviate from market expectations of three 25 basis point rate cuts by the Bank of England in 2025.
UBS notes that unless there is a significant external shock, such as a trade war, inflationary pressures within the UK economy could limit the ability to deliver rate cuts.
UBS’s long-term target for EURGBP remains at 0.8200, but they acknowledge the possibility of the pair falling below this level.
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