ECB’s assessment of EUR appreciation will be important - Nomura

In view of analysts at Nomura, while the ECB is likely to announce its tapering plan in October, its assessment of EUR appreciation will be important for EUR.

Key Quotes

“As Mr. Cœuré said, the recent EUR appreciation is quicker than rate spreads suggest, and EUR sensitivity to rate spreads is at a historically high level. This means EUR appreciation is consistent with the direction of rate spreads, but the reaction may be amplified by “exogenous factors.” After the likely tapering announcement in October, market interest in ECB policy may decline, which could also lower EUR sensitivity to rate markets. Thus, an adjustment in the speed of EUR appreciation is possible, but we judge the direction of EUR is right. Another factor we need to consider is broader movement of financial conditions, which remains accommodative (and President Draghi said “they (financial conditions) remain broadly supportive of the non-financial companies and enterprises”).  We thus judge there is further room for EUR appreciation, maintaining a bullish stance on EUR.”