European Central Bank

Posted by Scriptaty | 8:47 PM

The European Central Bank (ECB) is seen as the wild card right now within the FX community. While the main refinancing rate currently stands at 2 percent, some analysts believe the ECB could be forced to hike rates, perhaps even this year, despite extremely sluggish growth in the eurozone — in the neighborhood of 2 percent, vs. the 4.5 percent growth pace seen in the U.S. and Japan.

“The only mandate of the ECB is to ensure price stability,” Dolan says. “They might be forced to raise rates due to higher oil prices.”

However, Dolan and others admit that a rate hike would wreak havoc with any potential improvement in the growth pace in the eurozone and would ultimately be a negative factor for the currency.

Another option: If the ECB chooses to hold steady at future meetings this year “as the rest of the world raises rates, it will devalue the euro and that will ultimately help the [European] economy,” Busch says.

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