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EUR & SEK: Downside risks for inflation more acute in the Eurozone - MUFG

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Mar 1, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    Lee Hardman, Currency Analyst at MUFG, suggests that the euro is continuing to weaken modestly heading into next week’s FOMC meeting.

    Key Quotes

    “The case for more aggressive ECB easing was reinforced by the release yesterday of the weaker than expected euro-zone CPI report for February. The report revealed that both headline and core inflation came in weaker than expected declining to annual rates of -0.2% and 0.7% respectively in February. It was the lowest headline inflation rate in over a year. The recent loss of growth momentum in the euro-zone has increased downside risks as well to the ECB’s inflation outlook.

    In contrast, it was revealed yesterday that Sweden’s economy is booming as it expanded a robust annual rate of 4.5% in Q4. The diverging economic performance between Sweden and the euro-zone has cast further doubt over the appropriateness of the Riksbank’s monetary policy stance. The Riksbank pre-emptively lowered rates further into negative territory last month in anticipation of further ECB easing this month in an attempt to dampen a potential strengthening of the krona.

    The strategy has worked so far as the krona has remains significantly undervalued. However, strong fundamentals will keep upward pressure on the krona which is likely to strengthen more materially when the Riksbank finally judges that it is inappropriate to maintain a similarly loose monetary policy stance as the ECB.”
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