Next wave of ECB ‘exit’ pricing mid 2018 – Danske Bank

‘Normalisation’ is set to take place only very gradually in both the eurozone due to the outlook for a continued feeble inflation outlook and in Sweden, as a fragile housing market has become an additional argument for a cautious Riksbank, according to analysts at Danske Bank.

Key Quotes

“We stress that it is when markets sense a shift away from central bank easing that currency moves occur – the actual delivery of hikes matters less. In our view, the ECB took the first step in this direction in June this year by removing the option of lowering rates further and starting to talk about reflationary (rather than deflationary) risks dominating.”

“In mid-2018, we think the ECB will unleash the next wave of ‘normalisation’ trades by announcing an end to QE later in the year. And, in the absence of a housing crash, we believe the Riksbank will continue to shadow the ECB for some time still.”

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