Euro to come under pressure if inflation not ease so quickly – Commerzbank

Even though attention seems to focus almost exclusively on the Dollar, one should not lose sight of what the ECB has to say. Economists at Commerzbank analyze how the Euro could be affected.

What ECB rate path would be considered to be EUR neutral?

“It does not only matter whether the ECB rate path will turn out to develop as the market is currently pricing in when it comes to the EUR moves on the FX market. It is likely to be more important how the ECB reacts to inflation developments.”

“Only if inflation falls as quickly as expected by the market, a rate path as depicted below would turn out to be neutral for EUR exchange rates. Would inflation not ease so quickly, any rate cuts (or market expectations of cuts in the near future) would put pressure on the Euro.”