Does the ECB care about a higher EUR? Credit Agricole CIB FX Strategy Research still thinks that the answer is yes.
“We still believe that any sustained currency gains from here could pose a clear downside risk to the Eurozone inflation outlook in the next 6M-12M especially given the worsening outlook for oil. In addition, further unwarranted FX appreciation will only add to the ongoing tightening in the Eurozone financial conditions on the back of the mini ‘taper tantrum’ in the EGB market.
In all, EUR will continue to reign supreme in the absence of any evidence that the ECB is worrying about the impact of the FX appreciation on the economic outlook. The July ECB meeting next week could provide the best venue to express any such concerns.
We should also highlight the fact that the ECB is not necessarily out of options when it comes to containing the currency rally in the near-term.
Indeed, we suspect that any potential delay of the QE taper announcement could serve as a dovish surprise to the EUR-bulls,” CACIB argues.
Source: Credit Agricole CIB Research
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