According to analysts Nordea, he European Central Bank (ECB) has paved the way to reach the 1.25 levels en el by EUR / USD.
“The ECB refrained from rattling the EUR’s bullish cage as the deposit rate cut remains a follow-up scenario for policy makers. The trade-weighted EUR has traded roughly sideways since August, which is probably comforting for the Gandalfs inside the ECB. As long as emerging market trading is running, the EUR / USD can also climb slowly. “
“The ECB’s staff inflation projections treat the exchange rate very mechanically. A development in line with the 75th percentile in a “risk cone” around the implicit forward EUR / USD equates to a downward revision of 0.2%, 0.5% and 0.6% from 2021, 2022 and 2023 in the forecast. It also means that the EUR / USD can move to 1.25 or so during the spring without any repercussion if inflation surprises by 0.2% points compared to the current staff projection. It’s not an impossible scenario given how pessimistic inflation has become, including the ECB staff. “
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