A Citi analysis says concerns about France's fiscal position could add pressure on the euro to weaken, while the European Central Bank may have to halt rate increases after December or sooner if financial market tensions spread across the eurozone. Citi believes the ECB is shifting to give more weight to financial conditions than to inflation concerns, raising the question of how long the ECB can continue its tight monetary policy. The market has already priced in almost all expectations for an ECB rate hike in December and still expects nearly two more hikes in 2027. Citi expects the market may lower its ECB rate expectations relative to Federal Reserve rates by 0.50 to 0.75 percentage points, as investors assess the rate outlook for both central banks. Overall, Citi sees France's fiscal uncertainty and the possibility that the ECB shifts toward a more accommodative monetary policy as factors that could push the euro down further.
Citigroup Inc.Citi warns ECB may pause hikes and French fiscal troubles could push the euro lower
