SEB Research now expects the ECB to announce a mix of policy changes at the September meeting.
In particular, SEB expects the ECB to 1- raise the deposit rate by 15bps to -0.25%, 2- lower monthly purchases to EUR 40bn from Jan. 2018, and 3- Extend the time horizon of its QE program which will be gradually phased out until June 2018.
On the FX front, SEB notes that since 2015 EUR/USD has been trapped between 1.05 and 1.15 and there is no reason to expect it to go elsewhere in coming years.
"To a be a bit more specific we see some further upside potential in the currency pair from current level if the ECB changes its policy according to our expectations," SEB argues.
In line with this view, SEB expects this policy change to support the euro against the dollar, and subsequently has changed its EUR/USD forecasts.
"We therefore adjust our EUR/USD forecasts higher by the end of Q2 to 1.10 and to 1.10 by year end, which means we expect it to trade on higher ground (1.08-1.12) for the rest of the year," SEB projects.
Source: SEB ResearchOriginal Article
