ECB is in a good place, but no reason for complacency.Can’t allow inflation undershoot to shift expectations.Concerned about inflation being below target for an extended time.Exchange rate is not a policy target.Risks to inflation are two-sided.The Euro has real chance to become more important.
He’s clearly a dove with such a strong focus on the risk of undershooting the target. ECB speakers have been citing Euro’s appreciation much more frequently recently with de Guindos kind of drawing a line in the sand at $1.20.
All else being equal (and it rarely stays like that), if the euro continues to surge and goes beyond 1.20, we could see ECB speakers considering more than one rate cut, especially if inflation falls below target for an extended period of time.
This article was written by Giuseppe Dellamotta at www.forexlive.com.