It is clear that the divergence in policy between the euro-zone and the US is becoming wider and reinforcing that going forward will be continued weak growth and inflation in the euro-zone. The euro-zone flash CPI estimate for August of 0.3% underlines how far we are now from the ECB’s 2.0% inflation goal. The 5- year/5-year swap rate, referred to by President Draghi in his speech will also be monitored more closely as a guide to potential shifts in ECB policy going forward.
While we remain sceptical of broad-based sovereign debt QE being implemented, the speech by President Draghi will help keep the euro on a softening trend as the policy contrast with the Federal Reserve becomes more apparent. Our Q2-2015 EUR/USD forecast remains 1.2700.
BTMU