EUR/USD: New ECB framework will support euro appreciation in the near term – NFB

Analysts at the National Bank of Canada, estimated the EUR/USD pair could trade at 1.20 during the third quarter and then rising to 1.21 for the fourth quarter. They consider the new European Central Bank framework will support the euro in the near term. 

Key Quotes:

“The euro was not spared from the rise of the trade-weighted USD. True, the currency finds itself a tad below its late-May high of just above US$1.22. That said, the European coinage has fared better than some of its peers.”

“A recent development for the euro was the ECB’s abandonment of its "close to, but below, 2 per cent" inflation target in favour of o "symmetric” 2% target, meaning that “negative and positive deviations of inflation from the target are equally undesirable" but that temporary overshoots or undershoots would be tolerated when needed - on important departure from the conservative policy guideline that was adopted at the time of the euro's creation. In other words, the reaction function of the central bank to higher inflation will be slower as it welcomes foster growth.”

“We think the new ECB framework will support euro appreciation in the near term. Since it comes at a time when the public-health picture on the continent is improving and vaccination campaigns are steaming ahead. This sets the stage for a reopening of tourism, which would be a boom for Eurozone GDP growth in Q3.”