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EURUSD: Risk of further easing from ECB – MUFG

FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, suggests that the scope for the euro to rebound against the US dollar if the Fed delays tightening monetary policy is dampened by the increased likelihood that the ECB will ease monetary policy if the outlook for global growth deteriorates further.

Key Quotes

“President Draghi signalled clearly at the ECB’s last monetary policy meeting that they stand ready to increase their asset purchase programme if downside risks to their outlook for inflation in the medium-term heightened.”

“ECB Executive Board member Coeure reiterated those comments on Friday stating that the ECB is “ready to extend QE beyond September 2016 if needed”. He added that the Fed’s policy decision confirmed their diagnosis of global risks. However, it was surprising that he described the euro as having “appreciated fairly significantly in recent weeks”.”

“The ECB’s trade-weighted euro measure is roughly flat in September and up only 3% and 6% respectively since the August and April respectively. He also reiterated that monetary policy between the ECB and the Fed remains on different trajectories.”

“The comments highlight that the ECB remains very sensitive to a stronger euro, which undermines it ability to strengthen on a sustainable basis ahead. We continue to believe that further ECB monetary easing will help to lower EUR/USD heading into next year. President Draghi is scheduled to speak before the European Parliament on Wednesday.”

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