What's Wrong With This ECB Forecast
While Mario Draghi will never openly admit it, the whole purpose of today's ECB charade, in addition to reflating asset prices to record-er highs of course, is to push the EUR lower. Which is why some are scratching their heads why, at the same time as Draghi stopped just short of firing the monetary bazooka at the artificial European currency (even if he did precisely as he was expected), the ECB also released monetary forecasts which were a tad conflicting.
Bilateral exchange rates are assumed to remain unchanged over the projection horizon at the average levels prevailing in the two-week period ending on the cut-off date of 14 May 2014. This implies an exchange rate of USD 1.38 per euro between 2014 and 2016, which is 4.2% higher than in 2013. Over the projection horizon, the effective exchange rate of the euro is assumed to be 2.7% stronger than in 2013.
In other words, previously the ECB forecast 1.36. Now if forecasts 1.38.
Gotta love that Frankfurt forward guidance.
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