Credit Suisse pointed out that, while the European Central Bank (ECB) did not act at its March 6th meeting, recent comments cemented the fact that the Eurozone monetary authority is uncomfortable with the appreciation in the euro and left the door wide open to future easing. These analysts think Draghi was ‘particularly forceful’ when commenting that currency strength was ‘becoming increasingly relevant in our assessment of price stability’. Credit Suisse noted that the ECB forecast of 1.7% inflation growth in 2016 was only just in line with the monetary authority’s target and that projection would be lowered in the case of either weaker than expected growth or a much stronger euro. In either of these cases, these experts think ‘there would now be a powerful case for policy response’. These experts consider an increase in the single currency to be the larger risk in the face of a ‘slowly strengthening recovery’. They referred to a recent ECB analysis that a 10% rise in the trade-weighted euro would shave over half a percentage point off projected inflation in late 2016. ‘It would only take a further 4% rise in the euro from here to (all else equal) push the ECB’s Q4 2016 inflation projection to around 1.5%, a rate that could prompt a policy response,’ they said. These analysts noted that this would be equivalent to a euro/dollar at around 1.44. The currency pair is currently trading at 1.3904. The ECB’s next scheduled policy meeting will take place on April 3rd.

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