Euro likely to be strong in long run

For the past three years, EUR has been the third worst performing currency in G10 on a trade-weighted basis. Domestic Inflation is likely to surpass expectation in the currency bloc, particularly as there is a rebound in domestic demand. (Core inflation is expected to be 2.2%.) If the expected rate is reached it will be a major surprise. A sudden acceleration in inflation might see strong doubt by the European Central Bank and the market. However, it will make way for the central bank to end its current open-ended QE programme earlier. The impact on the EUR will be only slightly positive in the beginning due to scepticism by the ECB and markets that the inflation cannot accelerate suddenly. However, the impact on currency will be strongly positive in the long run.