Report13 February 2018Updated one year ago

ECB’s Sisyphean task: To credibly talk down the euro

Despite recent attempts, we don’t believe the ECB will be able to credibly talk down the euro and look for more EUR/USD upside in the quarters to come 

Executive summary

There are three key hurdles why the ECB won’t be able to credibly lean against the euro:

  • Despite recent ECB officials’ comments, the euro is not actually strong. While EUR/USD is up by 4% over the past six months, the trade-weighted euro (which matters for the ECB) is, in fact, largely flat.
  • The potential disinflationary effects of a stronger euro are likely to be mitigated by the rise in the oil price.
  • Drivers of exchange rate moves matter. Given the latest strengthening of the euro is also partly a function of solid Eurozone economic growth, such a strengthening should do less harm to the economy.

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