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Monetary divergence is most evident in the euro area, given swap pricing. Traders expect the ECB to deliver more than 100bps worth of easing, the top curve chart and IRP table show this differential vs our selected list.
Looking into the next 5 central bank meetings, the curve spread chart is negative vs Japan as policy differential is expected to converge vs the US. However, the same spread extends higher into 50bps vs Europe.
Market focus can shift every other week, but the picture is not looking bright for the euro to rally much further. This pricing differential continues to support parity vs the dollar
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