ECB endorses weaker EUR, flags political risks - ANZ

Research Team at ANZ, notes that the ECB Vice President Constancio spoke yesterday, saying that the central bank will maintain its loose monetary policy stance and re-iterated that the central bank does not target the exchange rate.

Key Quotes

“That would seem to imply that the ECB is not unhappy with the recent slide in the euro and the monetary backdrop is supportive of that. Although by no means the base case view, in its latest Financial Stability Report, the ECB noted that political risk had ratcheted up, noting the uncertainty following the outcomes of the UK referendum on EU membership and the US election as well as market concerns about euro area banks’ longer-term profitability prospects. “….economic policies in the United States will likely become more inward-oriented, while the fiscal deficit may grow as a result of tax reductions and increased infrastructure and defence spending. In such a scenario, the euro area economy may be impacted via trade channels and by possible spillover effects from higher interest and inflation rate expectations in the United States,” the report said.”