ANZ FX Strategy Research argues that that there are 5 reasons to be skeptical that President Draghi will address euro strength head-on in any meaningful way at the ECB meeting on Thursday which could allow for some short-term upside risks.
- "First, the euro is not overvalued and its pace of appreciation has been relatively moderate.
- Second, the current strength in the exchange rate reflects improved confidence in the euro area's economic prospects and fading deflationary risks.
- Third, the ECB is approaching the end of its current QE program and has recently dropped its pervious reference to the possible need for lower interest rates.
- Fourth, the average EUR/USD rate for the first eight months of this year has been 1.1050, compared with 1.116 for the first eight months of last year.
- Fifth, it might confuse well-planned policy guidance to try and weaken the exchange rate at a time when the ECB will soon be providing details on a the aftermath of its current QE program, which is widely expected to involve communication of details of a tapering program or reduced asset purchases at the 26 October meeting," ANZ argues.
