Eurozone: Sustained improvements in data - Westpac

Tim Riddell, Research Analyst at Westpac, explains that sustained improvements in EU data evident into 2017 have reduced negative risks for ECB, but affirmation of the pick up in core inflation is still needed to suggest an early ECB policy change.

Key Quotes

“The unwind of US reflation trades added to both EUR/USD and US-bund 10yr yield spreads driving back to pre-US election levels. However, the rise of external (US) risks could push back on ECB, especially if US politics were to impair both US and global growth.”

“After easing recently, political tensions in EU could eventually resurface with Austria calling early elections in 4Q. There is a real possibility that the far right may increase their seats. Italy may call early elections as well, though this is unlikely before local elections in June.”

“EUR/USD may push above the previous perceived cap of 1.12 but monetary policy divergence is likely to limit such gains while CHF is bound to maintain a safe-haven bid.”