In this short video at CNBC we discuss the risks of a strengthening EUR for European estimates:
- Eurostoxx earnings’ growth estimates are at risk. A full year of EUR/USD above 1.20 means earnings growth could go to zero as most exporters in the index are mid-to-low value-added that fail to maintain margins if the European currency strengthens.
- ECB’s inflation expectations are under threat. A full year of EUR/USD above 1.20 means both core and headline inflation could fall below 0.8% and 1.5% respectively.
- ECB will likely have to postpone normalization of monetary policy while risk of fueling bubbles is mounting.
Daniel Lacalle is a PhD Economist, author of Escape from the Central Bank Trap and Life In The Financial Markets. He is Chief Economist at Tressis