EUR appears supported in the longer run – TDS

The single currency is expected to gain more traction in the next months, according to FX Strategists at TD Securities.

Key Quotes

“We have changed our ECB call. Growth is proving better than expected and messaging from the ECB suggests some removal of policy accomodation in 2018 beyond tapering. We expect a taper to €40bn/mo in 18H1 and €20bn/mo in 18H2, alongside a hike in the depo rate (only) of 15bps to -0.25% in 18Q3 to bring it symmetrically in line to the refi rate. High inflation is temporary and will fade somewhat, but growth remains robust”.

“Political risks are entering an acute phase, but their passage removes a key EUR headwind. The ECB sounds more confident with growth and inflation picking up and markets are now looking ahead to reduced QE. While an actual tightening remains distant, the EUR's medium-term fundamentals have improved. Capital outflows offset a strong C/A surplus, but we expect a firmer EUR - first on the crosses and then vs. the USD”.