Even if the euro sees temporary momentum on upcoming data or the prospect of an eventual slowing in bond purchases, economists at Capital Markets don’t see that move being sustained in the face of a gradually more hawkish tone from the Fed.
“Although the eurozone re-entered a technical recession in Q4/Q1, the prospect of a significant rebound in Q2, extending into H2, points towards ECB GDP forecasts for 2021 and 2022 being revised up from the March projections of 4.0% and 4.1%, respectively. We look for this year to be revised up to around 4.5%, with 2022 above 4.25%. In terms of HICP, we expect the March forecast profile to be raised by around 0.3% across the board. As the March ECB staff estimates assumed 1.5% for this year, 1.2% in 2022, and 1.4% in 2023, inflation will remain below target throughout the forecast horizon, other than for a short period, due to base effects.”
“While the growth picture will embolden the hawks on the ECB Governing Council to push for an early reduction in the pace of PEPP bond purchases, the doves, led by President Lagarde, are likely to rule the day, and have the ECB waiting for real data, rather than just forecasts, prior to adjusting the flow of bond purchases. Moreover, still ahead lies the results of the ECB policy review, due in September, which could entail changes that make the ECB more patient in terms of rate hikes than in past cycles.”
“So even if the euro sees some temporary momentum on upcoming data or the prospect of an eventual slowing in bond purchases, we don’t see that move being sustained in the face of a gradually more hawkish tone from the Fed.”
