ECB: EUR/USD exchange rate seen 1.18 in 2018 and 1.14 over 2019-20

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Below are the key takeaways from the European Central Bank’s publication titled ‘September 2018 ECB staff macroeconomic projections for the euro area.’

  • Following very strong growth in 2017, the expansion weakened considerably in the first half of 2018.
  • Looking ahead, over the next few quarters euro area real GDP growth is expected to remain stable.
  • Over the medium term, the fundamentals remain in place for a continued expansion. 
  • Nevertheless, real GDP growth is projected to slow slightly over the projection horizon, as some tailwinds gradually fade.
  • Real disposable income growth is set to strengthen in 2018 and 2019, before weakening in 2020. 
  • Private consumption is projected to remain resilient over the projection horizon.
  • The household saving ratio is expected to increase gradually over the projection horizon from historically low levels.
  • Bilateral exchange rates are assumed to remain unchanged over the projection horizon at the average levels prevailing in the two-week period ending on the cut-off date of 21 August 2018.
    • This implies an average exchange rate of USD 1.18 per euro in 2018 and of USD 1.14 per euro over 2019-20, compared with USD 1.18 in the June 2018 projections.
    • The effective exchange rate of the euro (against 38 trading partners) is 1.5% stronger than entailed in the June 2018 projections.
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