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Jan 14 - 06:55 PM

EUR: 2020 EUR/USD Rally A Problem For ECB As The C-Bank Is The Furthest Away From Its Inflation Target - BofA

By eFXdata  —  Jan 14 - 03:00 PM

Bank of America Global research discusses the ECB policy trajectory in light of EUR/USD rally through the end of 2020.

"We believe that the ECB is a key theme for the EUR this year. The ECB is facing substantial challenges, with limited policy tools. The Strategy Review in the first half of the year is supposed to come up with a plan, but we don't see easy solutions. It is also not clear which way it will affect the EUR, as ECB monetary policy easing tends to support the periphery spreads and sometimes ends up supporting the EUR. In more detail, the ECB is the furthest away from its inflation target it has ever beenEurozone core inflation is at its lowest level ever, while headline inflation is negative " BofA notes. 

"Although the EUR is currently at its long-term equilibrium, the 2020 EURUSD rally is still a problem for the ECB, in our view. As we argued above, the weak Eurozone data, particularly for inflation and particularly compared with the US, would justify a EUR level well below its long-term equilibrium and therefore current levels. The EUR rally last year contributed to the drop of Eurozone inflation and keeping it down," BofA adds. 


BofA Global Research


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