Economy & Currency Outlook 2017 to 2018.
This article is originally referred from FXPrimus Special Report.
While most banks expected EURO to range on both risks of steepening rates and politics, anticipating a low of $1.05 versus DOLLAR, EURO saw a tremendous c. 12% gain mainly driven by ECB’s announcement to taper its Quantitative Easing (QE) programme as well as owed to a weaker US and GB counterparts.
With ECB’s particularly accommodative monetary policy stance continuing to improve sentiment indicators, Q3 Real GDP Growth confirmed at 0.6%.
Driven by a robust domestic demand, an expansionary private sector and favorable bank lending conditions, expectations of future interest rates supported the economic recovery in the Euro area.
Under my base case, ECB’s decision to re-calibrate the asset purchase program from 60 to 30 billion Euros a month from January 2018, with an extension of the period the stimulus runs, is likely to stoke inflation and boost the economy.
Despite the tapering came at a period were EURO was not appreciating – making the announcement quite dovish –, I believe that the slow pace in policy normalization will support inflation into 2019 but not considerably in 2018.
On the above basis therefore, and with low rates to remain the case in 2018, I forecast that EUR/USD will extent to $1.278 – $1.311.
Original Source: FXPrimus Special Report