24 Mar 2014
The ECB and the Euro - Societe Generale
FXStreet (Barcelona) - Sebastien Galy, Senior FX Strategist at Societe Generale comments that we continue to hear noise from the "broad" ECB signaling significant concerns regarding currencies (read EUR).
Key Quotes
“If last year, the signaling behind the scenes was at defcon 4, we are easily up a notch since then. The signaling has broadened from the doves to the hawks recently, probably as EM slowed down hitting core Europe's exports.”
“While EUR/USD may be consolidating, the broad EUR continues to rise on the back of portfolio flows and potentially diversification out of the USD. Does the ECB want to target the EUR directly, hiding behind its mandate of inflation? This is very unlikely given the costs associated with targeting an exchange rate, examples from Switzerland to China abound.”
“Nonetheless, on the margin, the ECB is more likely to choose forms of easing that have more of a negative impact on the EUR (e.g. non-sterilization, negative interest rates..). EUR volatility rather than USD volatility is likely to come back into focus after months of large scale portfolio flows into the EUR.”
Key Quotes
“If last year, the signaling behind the scenes was at defcon 4, we are easily up a notch since then. The signaling has broadened from the doves to the hawks recently, probably as EM slowed down hitting core Europe's exports.”
“While EUR/USD may be consolidating, the broad EUR continues to rise on the back of portfolio flows and potentially diversification out of the USD. Does the ECB want to target the EUR directly, hiding behind its mandate of inflation? This is very unlikely given the costs associated with targeting an exchange rate, examples from Switzerland to China abound.”
“Nonetheless, on the margin, the ECB is more likely to choose forms of easing that have more of a negative impact on the EUR (e.g. non-sterilization, negative interest rates..). EUR volatility rather than USD volatility is likely to come back into focus after months of large scale portfolio flows into the EUR.”