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It may take a while for markets to settle, but analysts at ANZ Research still stands for euro depreciation in the coming months. The outlook for euro area growth is deteriorating sharply, and reflationary policy tools are limited. 

Key quotes

“The euro area is very exposed to downturns in global trade. Domestic demand will also weaken. We have cut our EA 2020 GDP forecast to 0.2%. Disinflationary pressures will intensify.”

“We anticipate only limited cuts to the deposit rate (20bps to -0.70%). Targeted measures to support credit availability are likely, while a temporary, reluctant increase in QE purchases from EUR20bn to EUR30bn per month can’t be ruled out.

“In the short term, adjusting to recent financial movements and the desire among policymakers to contain volatility could leave EUR/USD becalmed. However, the US is better equipped economically to respond to the current crisis. Whilst interest rate support for the USD has been eroded, the growth outlook is better. We forecast US growth will rise by 1.5% this year vs 0.2% in the euro area.”

“Owing to the better US growth outlook and policy optionality, we expect that the EUR’s depreciation will resume in time.”