Goldman Sachs: ECB Likely To Discuss Inflation Impact Of FX Appreciation

Goldman Sachs note that their "Europe Economics team expects ECB officials to comment on the Euro at this week's meeting, focusing on its implications for the inflation outlook. However, policy action seems unlikely, because the ECB has historically not reacted to appreciation that primarily reflects improving economic prospects for the region. We would add that ECB officials will likely consider recent Euro appreciation in the context of the Recovery Fund, and its implications for Euro internationalization. Fighting this type of Euro appreciation, especially through more deeply negative rates, could damage the medium-term goal of fostering a greater global role for the currency. If the Governing Council does indicate more openness to rate cuts, in contrast to our expectations, the Euro could weaken through the bottom end of its recent range."