HSBC economists say that the European Central Bank is likely to proceed cautiously with further rate cuts, even though the euro’s recent strength could push inflation below the ECB’s 2% target, citing:
- due to the delayed effects of monetary policy, the ECB may choose to overlook short-term currency fluctuations
- while the euro has risen sharply against the dollar, its overall trade-weighted appreciation has been more moderate
- ECB June meeting minutes highlighted that eurozone businesses have faced profit margin pressures. These firms might take advantage of the stronger euro to restore margins instead of lowering prices for consumers
- any inflation-dampening effect from the stronger euro could be countered by looser fiscal policy in Europe
This article was written by Eamonn Sheridan at www.forexlive.com.
