EUR Slips as ECB Forecasters Downgrade Inflation Expectations


Talking Points

EUR/USD remains near a two-year high on Euro-Zone optimism and US dollar woes.

– Growth expectations are clicked higher but a lower inflation outlook may cause the ECB to reign in future monetary tightening expectations.

The results of the Q3 ECB survey of Professional Forecasters will present ECB President Mario Draghi with a headache moving forward, with growth expectations nudged higher but with inflation expectations moved lower.

EUR Slips as ECB Forecasters Downgrade Inflation Expectations

A look at the above table will show that the forecasters expect inflation to remain stubbornly low over the next three years and below the central bank’s mandate of close to 2%. This lower-for-longer inflation outlook may curtail some of the current thinking that the ECB will tighten monetary policy in the short- to medium-term. The ECB’s outlook for EURUSD was pegged around the 1.09 level for the next few years and with the pair currently trading around 1.16, even the revised lower inflation forecasts may prove difficult to hit.

The quarterly survey is conducted by financial experts within the EU but do not represent views of the ECB decision-making bodies or staff.

EURUSD is currently drifting off its August 2015 high after rallying from a low of 1.03400 at the turn of the year. And from a technical perspective, the 20-day ema has just moved up through the 100-day ema, a bullish sign that suggests further gains for the pair.

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Chart: EURUSD Weekly Timeframe (January 2013 – July 21, 2017)

EUR Slips as ECB Forecasters Downgrade Inflation Expectations

Chart by IG

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— Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

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