Optimism raises the Euro; but the ECB can afford it. Export will cry, but the austere people enjoy it
Evvai the euro is strengthened !!. Everyone to celebrate, or not?
Bloomberg reports that, according to some informed officials, the ECB's communications today will show heightened confidence in euro area growth. Blessed are they who "trust"
GDP for this year will be revised upwards, one person said, with private consumption in particular going much better than expected, although it would be interesting to know where this happens …
This statement alone was enough to send EURUSD up by 60 basis points, 0.6%, perhaps because the algorithms that now command trading do not have a long memory on how well the ECB's forecasts are right.
What does the ECB want to do? Do you want a euro at 1.2 or more, killing exports to the sound of optimism, or do you want a value of around 1.10, if not less, thus maintaining a good export opportunity? Above all, as Welt points out, what happens to the central bank's 2% devaluation targets? A revaluation makes it even more difficult to reach the inflationary target, especially because it would cool the economy, This is why, to counterbalance this trend, rumors have emerged that spoke of the possibility of a further increase in the PEPP, the purchase of government bonds in the euro area with monetary injection over 1.35 trillion currently reached.
This move should in theory weaken the euro, but according to the Germans, injecting liquidity should even STRENGTHEN the euro. Why? Because it would decrease the tensions in the monetary area between strong and weak countries. So we are at the paradox that the Germans of Welt, deep down, hope that the Euro is subject to strong tensions, so that it remains weak, while the ECB wants it to survive and would like it strong, thanks to the PEPP. A huge confusion that the Central Bank will resolve today.
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The article Optimism raises the Euro; but the ECB can afford it. The export will cry, but the austere people enjoy it comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/lottimismo-alza-leuro-piangera-lexport/ on Thu, 10 Sep 2020 06:30:50 +0000.