Euro and the ECB: The positives outweigh the negatives – Credit Agricole

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.

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