ECB policy key for H2 - Nomura

Analysts at Nomura explained that the ECB policy normalisation is likely to be an important theme in the FX market into H2 this year. 

Key Quotes:

"Rate hikes before QE ends, unlike the current forward guidance, would especially strengthen EUR more aggressively."

"The historical relationship suggests EUR tends to react to the short-end of curve more than the long-end, while earlier rate hikes could erode ECB’s credibility in the medium term, which could strengthen EUR more significantly."

"We currently expect the ECB’s next policy normalisation step to be communication of tapering, but EUR upside risks could be more significant if ECB members continue to suggest a weaker commitment to the current forward guidance."

"In the short term, French political uncertainty should still cap upside risks for EUR, but midterm EUR appreciation pressures are clearly building."