Credit Agricole CIB Research flags a scope for EUR recovery on the back of the ECB policy normalization over the coming quarters.
"We recently argued that the removal of negative rates in the Eurozone could be positive for the EUR despite the fact that it could still leave the single currency trailing behind other, higher-yielding G10 currencies like the USD as well as low-yielders like the JPY and CHF," CACIB notes.
"The positive EUR/USD-impact from a wider EUR-USD rate spread could be offset by the negative impact from wider peripheral bond yield spreads in the wake of any ECB policy normalisation. That being said, we expect that the policy normalisation approach adopted by the ECB will combine both monetary tightening through the rates channel and credit easing, through a continuation of the bank’s EGB purchases in the coming quarters. To the extent that the mix of policies helps to both boost EUR-rates and contain the Eurozone peripheral risks, it can also help the EUR recover, especially vs low-yielders like the JPY and CHF but also as well as the USD," CACIB adds.