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Scenario risks to the exchange rate in the event of an extension of QE (at its current pace, or at a slightly slower one) would be skewed to the downside if the decision to extend the programme is prompted by a deterioration of the euro area growth and inflation picture between now and December.

3. Regardless of the ECB

Regardless of the ECB’s decision in December, risks are still generally skewed to the downside for the euro, as the fed funds rate hike path priced in by the market is blander than prospected by the Fed. Therefore, if the performance of the US economy surprises on the upside, the supportive effect on the dollar would be stronger, not only against the euro, but also compared to the other currencies.

EURO, Greater, Vulnerability, Single, Currency, Currency Analysis, fx trader, forex fig-1EURO, Greater, Vulnerability, Single, Currency, Currency Analysis, fx trader, forex fig

EURO, Greater, Vulnerability, Single, Currency, Currency Analysis, fx trader, forex figEURO, Greater, Vulnerability, Single, Currency, Currency Analysis, fx trader, forex fig

EURO, Greater, Vulnerability, Single, Currency, Currency Analysis, fx trader, forex figEURO, Greater, Vulnerability, Single, Currency, Currency Analysis, fx trader, forex fig

Source: Thomson Reuters-Datastream

Luca Mezzomo / Chief Economist
Asmara Jamaleh / Economist – Forex Markets
Intesa Sanpaolo Research Department

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