BNP Paribas economics team have adjusted their ECB forecast and now no longer sees a broad asset purchase program as likely.
“While the ECB is expected to continue to hold out the possibility, our base case expectation is now that they will ultimately not resort to outright QE operations absent a new shock. The reduced likelihood of the ECB announcing a QE programme implies a somewhat slower path of EUR depreciation than previously anticipated,” BNP clarifies.
However, BNP continues to expect the currency to trade with a weaker bias in the second half of the 2014 relative to the rest of the G10 and most EM currencies, as the effects of the June rate cut continue to weigh.
“We are making a modest adjustment to our EURUSD forecasts, raising the Q3 2014 target from 1.32 to 1.34 and the year-end 2014 target to 1.32 from 1.30. Our Q1 2015 target has been raised to 1.30 from 1.28 but we continue to look for 1.26 by the end of Q3 2015,” BNP projects.