15 Jul 2014
ECB: Whatever it takes - RBS
FXStreet (Guatemala) - Strategists at RBS explained that one plausible explanation for the post 'whatever it takes' appreciation is a shift in the euro FX risk premium.
Key Quotes:
"The excess compensation that investors required to hold euro denominated assets given the potential returns in bad states of the world. That OMT-induced compression in the risk premium, and the corresponding move in the currency, is likely to persist".
"The underlying shift in beliefs would likely have a material impact on the output gap and inflation through other channels – largely pushing in the opposite direction – via a shift in animal spirits, the virtuous circle of positive feedback through the banking sector, and even healing some of the supply side scar of the financial crisis".
"However, much of the full price level effect from exchange rate pass through into consumer prices could be in the data before some of these other transmission channels start to kick in".
Key Quotes:
"The excess compensation that investors required to hold euro denominated assets given the potential returns in bad states of the world. That OMT-induced compression in the risk premium, and the corresponding move in the currency, is likely to persist".
"The underlying shift in beliefs would likely have a material impact on the output gap and inflation through other channels – largely pushing in the opposite direction – via a shift in animal spirits, the virtuous circle of positive feedback through the banking sector, and even healing some of the supply side scar of the financial crisis".
"However, much of the full price level effect from exchange rate pass through into consumer prices could be in the data before some of these other transmission channels start to kick in".