Credit Agricole CIB FX Strategy Research comments on the BIS annual report released over the weekend.
In particular, CACIB notes that in the report the BIS has encouraged the major central banks to use every opportunity from here to cautiously normalize policy, and this will give the likes of the Fed a room to manoeuvre in the event of renewed economic downturn.
In other words, CACIB notes that the BIS report has corroborated a different direction for the Fed and the ECB going forwards.
"The Fed in particular will continue to normalise policy in part because it wants to amass rate hikes which can be used to fight the next recession…Things are bound to look somewhat different for the ECB. Indeed, different from the Fed, the ECB is still facing an economy with a significant output gap and uneven and potentially rather shallow recovery," CACIB argues
The above would suggest that the ECB will continue to sound relatively dovish for now if only because it tries to avoid a premature and unwarranted tightening in the financial conditions (eg EUR appreciation) ahead of the still to be announced QE-taper, which we expect next year," CACIB adds.
All up, CACIB argues that a key take from the BIS report points at growing downside risks for EUR/USD in the near term.
Source: Credit Agricole CIB ResearchOriginal Article
