IS THE ECB DISARMED? Between political constraints and uncertainties it seems that it cannot stop the growth of the Euro
In recent days there has been a lot of talk about the weakness of the dollar against the Euro, also due to the choice of Janet Yellet as head of the treasury, that is, the one who perhaps most supported QE and who, also on this occasion, made it clear that he will not spare himself from the point of view of stimuli. However, at the same time, we could also read the data backwards: the Euro is strengthening against the dollar. Let's see how the euro-dollar exchange rate is moving.
It is clear how we are witnessing a revaluation of the euro against the dollar. The reasons? They are very simple:
- We have a euro area trade balance surplus which, after the uncertainties in the spring, has returned to record levels. With these values we can only have a revaluation of the Euro on other currencies
- Negative rates are no longer a viable path, if not through the "Tier" which significantly weakens them. It would take the money to maturity at this point;
- an expansion of the PEPP, the exceptional purchase of securities for the epidemic, will probably be announced for 500 billion. however, there are political problems. Some countries are pressing that, in some way, the purchase limits by state, the famous Capital Key, are still imposed. In this way, however, the PEPP or the other APP operations; that is the ordinary QE, they are practically arrested because Germany will never issue the same debt as France, Spain and Italy. At this point it is better to "Expel" Germany from the euro area, paradoxically, and continue with the purchase programs.
on December 10, the ECB is expected to announce its moves, but the revaluation of the euro suggests that the market does not believe they are effective in boosting inflation. The consequences? :
- obstacles to growth due to lower exports;
- internal deflation, with all that that follows in terms of unemployment.
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The article IS THE ECB DISARMED? Between political constraints and uncertainties it seems that it cannot stop the growth of the Euro comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/la-bce-e-disarmata-fra-vincoli-politici-ed-incertezze-sembra-che-non-possa-fermare-la-crescita-delleuro/ on Fri, 04 Dec 2020 15:05:42 +0000.