Dukascopy Bank Team
Dukascopy Bank SA
Peter Cardillo, Chief market economist, on the ECB prospects
The interest rate was cut unexpectedly on 4 September, Thursday as the European’s Central Bank President Mario Draghi took the markets by surprise. This desicion followed even after his last statement on the matter: “for all the practical purposes, we have reached the lower bound.” Draghi plans the ECB will purchase a broad portfolio of euro-denominated covered bonds in the nearest future. Moreover, the so called ABS, asset-backed securities are expected to be bought. The Euro faced a sharp fall across the board below 1.30, losing 1 % for the first time since July 2013. But the question remains how much lower the Euro may go?
Talking about the Euro zone currency, I believe we are probably looking at 1.25 within the next several months. Mario Draghi surprised at the ECB Press conference last week amid the overall expectations in the market. However, the established situation is not really a full-blown Quantitative Easing like in the US. Nevertheless, I consider it to be a certain step into the right direction. In my opinion the Euro is overinflated in terms of the economic conditions. One of the reasons behind that is the economic condition itself, besides the structural reforms. Hence, an expensive Euro has been a drag on any real turnaround in the Euro land.
What else in your opinion could help the economic growth? And what could possibly ruin Draghi’s plans?
To my mind, the real emphasis was on reforms in many provincial nations such as Spain, Italy and others. In case Europe gets some sort of threat from the Russian-Ukraine conflict escalation, it would be helpful for the economic growth. However, it is a question of confidence (which is certainly lacking) due to the high rate of unemployment in Europe, which is very difficult to turn around, unless reforms will be pulled out.
What is your forecast for the EUR/USD and the EUR/JPY for the end of the year?
We expect to see the EUR/USD trading at 1.25 by the end of 2014. Regarding the EUR/JPY a 3% decline is expected for the rest of the year.
This overview can be used only for informational purposes. Dukascopy SA is not responsible for any losses arising from any investment based on any recommendation, forecast or other information herein contained.
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