Toxic mix for the Euro: ECB lowers growth and raises inflation forecast
The staff forecast slashed the outlook for real GDP by 0.8ppt over the forecast period. Below trend growth in theory should augur well for a return of inflation to 2% but this is not how the ECB sees things pan out. The jump in Oil prices and sticky wage growth resulted in an upward revision of inflation by 0.5ppt over the forecast period. Next year’s estimate was raised to 3.2%.
For EUR/USD, the path looks clear for convergence toward 1.05 if the Fed maintains its hawkish policy stance next week.