In the opinion of economists CIBC Capital Markets, the anticipation of rate hikes leaves the possibility that rates return to positive territory before the end of the year, which would support the euro.
The ECB remains aware that it may repeat the policy mistake of 2011
“Any move back to positive rates would not necessarily trigger an immediate rush of capital. However, any marginal uptick in reserve managers’ appetite for the euro would provide more substantive underpinning for the currency, warding off fears of EUR/USD testing 2017 lows.”
“Although headwinds to the real economy are picking up, and we remain mindful of peripheral spreads widening, the window for policy tightening may prove limited. Indeed, the ECB remains aware that it may repeat the policy error of 2011. However, a move early in the second half, combined with the debate over a possible return to positive rates, suggests that euro valuations will be supported in the short term, if not necessarily boosted immediately.”
Source: Fx Street
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