EUR/USD: Free Ride From the ECB – Commerzbank
Dr Jörg Krämer, Chief Economist at Commerzbank, suggests that the normalisation of US monetary policy will be a painfully slow process and such a process will not turn USD-positive.
“Hence, we do not expect any specific USD-positive impetus on a sustainable basis.
Near-term, this effect is superseded by rising risk aversion ahead of the Brexit vote – something that will certainly be corrected by end-June (after the referendum) at the latest.
The ECB apparently shifted its focus recently. While, so far, it has made sufficiently clear to the market that it prefers weaker EUR-USD levels, its statements have now turned ambivalent. Moreover, the recently announced instruments are aimed more at the credit rather than the FX channel of monetary policy. The ECB thus provides the market with a free ride for higher EUR-USD which it is likely to redeem once the elevated risk perception cools off.
Around 1.20 at the latest, however, the ECB is likely to adjust its focus again and stop with additional expansionary measures what it then considers to be excessive EUR strength.”