Recent developments have supported this framework. First, we (and markets) interpreted ECB President Draghi’s remarks at his January press conference as a signal that official rates are on hold for the coming months. The immediate focus of the ECB’s attention is to maintain progress with the reactivation and reintegration of credit markets so as to re- establish effective monetary policy transmission to the periphery, where the need for further stimulus is greatest.
Second, “talk of ‘currency wars’ – although hyperbolic, in our view – is now all the rage. As other leading central banks adopt more expansionary policies, the danger emerges that the ECB’s deeply-rooted relative conservatism will lead to a strong Euro appreciation, weighing on exports and growth while fuelling potential downside risks to price stability.” they warn.