Giada Giani at Citi address the question...>

ECB VIEW: Giada Giani at Citi address the question of whether the Euro should

matter for the ECB.

- Citi believe that the impact upon growth might be limited because "Companies'

profitability is strong, competitiveness looks structural and thus independent

of FX moves and consumers enjoy the dampening effect of the strong currency on

import prices".

- However, the doves on the ECB are more likely to be concerned by the habit of

forward looking inflation expectations to track spot inflation and that the

stronger euro may prevent a re-anchoring of inflation expectations.

- Yet, the improved growth might offset the pull lower of inflation from the FX

rate strength. According to Citi "Our models suggest that the demand shock of

the past year probably triggers at least as much upside to inflation as the

stronger euro which it triggered takes away. Eroding slack thus still warrants

less accommodative policy, the hawks may suggest."