[B]Euro Interest Rate Bias: Bearish[/B]
European interest rate forecasts have clearly weighed on the Euro/US dollar exchange rate, as expectations for European Central Bank interest rates cuts leave the euro at a disadvantage against its US counterpart. The difference between short-term Euro interest rates (3-month EURIBOR) and longer-term yields (2-year swap rates) now stands at 21 basis points in favor of the short end of the curve—indicating that traders expect rates to drop through the medium term. This stands in stark contrast to just three months earlier, when that same spread hit highs of over 50 basis points on market forecasts that the European central Bank would continue raising its short-term interest rate target.
