11 Mar 2016
ECB: Increased upside risks for modest euro weakness outlook - MUFG
Lee Hardman, Currency Analyst at MUFG, suggests that the initial strengthening of the euro after further ECB monetary easing has increased upside risks to their outlook for modest euro weakness during the rest of the year.
Key Quotes
“The ECB’s inability to weaken the euro further strengthens the case that the euro may have already bottomed. As a result, we will continue to monitor closely how the euro trades in the near-term.
The initial strengthening of the euro could yet prove to be an overreaction and temporary given that it does not appear consistent with the comprehensive package of easing measures announced by the ECB.
Our forecasts for EUR/USD to grind lower during the rest of the year were also more importantly driven by our view that the Fed will continue to gradually tighten policy. The recent weakening of the US dollar has eased monetary conditions in the US, and increases the likelihood that the Fed will resume rate hikes in Q2. The euro is likely to be undermined as well in Q2 by the heightened risk of negative Brexit spill-overs.”
Key Quotes
“The ECB’s inability to weaken the euro further strengthens the case that the euro may have already bottomed. As a result, we will continue to monitor closely how the euro trades in the near-term.
The initial strengthening of the euro could yet prove to be an overreaction and temporary given that it does not appear consistent with the comprehensive package of easing measures announced by the ECB.
Our forecasts for EUR/USD to grind lower during the rest of the year were also more importantly driven by our view that the Fed will continue to gradually tighten policy. The recent weakening of the US dollar has eased monetary conditions in the US, and increases the likelihood that the Fed will resume rate hikes in Q2. The euro is likely to be undermined as well in Q2 by the heightened risk of negative Brexit spill-overs.”