Shift in ECB stance strengthening EUR - BNPP
|A perception that a shift in the ECB stance will not be long in coming is strengthening the EUR, feels the Paul Mortimer-Lee, Chief Market Economist at BNP Paribas.
Key Quotes
“Since almost half the ECB’s increase in government bond holdings in the year to March 2017 came from foreigners, QE could have a very big impact on external flows.”
“When we examine the counterparts to monetary growth, we conclude that tapering QE could cause a big M3 slowdown, stifling external outflows and contributing to a stronger EUR.”
“Whichever way you look at it, it is difficult to avoid the conclusion that reduced QE will – all other things being equal – be a force for a stronger euro. Other things are not equal, however. In particular, we know that the Fed is set on reducing its balance sheet beginning later this year. Other factors also affect BNPP’s currency forecasts, but we see QE as having been a major driver over the period since 2015, and it may well be again going forward. There is an open question as to whether QE and negative rates together have a bigger FX impact than QE in the presence of positive rates.”
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