Summary
Topic of the Month
How long can the Central Banks’ divergence last
- The divergence of Central Bank policy rates is unlikely to significantly impact exchange rates, as other core currencies are not weak relative to recent history and market expectations of terminal rates in Europe are similar to those in the US.
- Global financial conditions are strongly influenced by US longend yields, and there is a risk of the term premium rising if US deficit and debt projections deteriorate.
- Although not in our baseline scenario, an energy supply and price shock would weaken European exchange rates and rapidly transmit to domestic inflation.
How long can the Central Banks’ divergence...
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