EUR/XOF Outlook: Slightly positive, but likely to move sideways as the rate hovers around its recent average and lacks a strong driver.
Key drivers:
• Rate gap: The European Central Bank is maintaining a neutral monetary policy, while the Bank of Central African States has raised its policy rate, supporting the XOF.
• Risk/commodities: Oil prices are elevated, which typically strengthens the euro as high energy costs impact imports and inflation in the Eurozone.
• One macro factor: The continued integration of Bulgaria into the Eurozone could bolster the euro in the long term, but immediate impacts may be limited.
Range: EUR/XOF is likely to drift within the recent three-month range, reflecting the current balance of factors without strong upward or downward momentum.
What could change it:
• Upside risk: A stronger-than-expected economic recovery in the Eurozone could lead to increased demand for the euro.
• Downside risk: Political uncertainty in West Africa, particularly regarding Senegal's moves away from the CFA franc, may weaken the XOF.