ECB exits currency war – Danske

By FXStreet According to analysts at Danske Bank, the European Central Bank, after yesterday’s announcements exited the currency war to focus on the credit/bank lending channel.

Key Quotes:

“Admittedly, Draghi has previously said that the ECB had reached the lower bound on policy rates and then changed it later. Still, the signalling effect from yesterday’s meeting was very clear. Arguably, lower interest rates are the most direct way to influence the exchange rate. So, the ECB has, for now, exited the currency war, which it entered in June 2014, and instead is focusing on the credit/bank lending channel.”

“We believe the ECB’s shift from targeting the exchange rate to targeting the credit/bank lending channel is a sensible step. There is a limited pass-through from negative policy rates to household deposit rates.”

“In our view, more expansionary fiscal policy together with structural reforms are needed to lift the longer-term growth prospects for the euro area. In addition, a stronger EUR will eventually pose new headaches for the ECB as it will struggle to meets its 2016 core CPI forecast of 1.1%.”

“We find the ECB’s measures positive for risky assets as they, after all, are targeting the bank lending, credit channel and thereby economic growth rather …read more

Source:: FX Street