UBS Predicts Euro Appreciation No Matter Who Takes Over ECB Helm

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Mario Draghi’s successor at the European Central Bank will likely trigger a euro rally -- regardless of who gets the job, according to a report by UBS Global Wealth Management.

Any replacement for the current ECB President, whose 8-year term ends in October, is likely to be seen as more hawkish, analysts led by chief euro-zone economist Ricardo Garcia say.

UBS Predicts Euro Appreciation No Matter Who Takes Over ECB Helm

Under Draghi, policy makers cut interest rates to negative levels, launched a controversial quantitative-easing program to fight off deflation, and stood behind his pledge to do “whatever it takes” to save the euro. The single currency lost 18 percent since the Italian took office on Nov. 1, 2011.

“The change from Draghi to a new leader is likely to strengthen the currency almost by definition. Anyone stepping in his big shoes will find it difficult at first to convince markets that he is as strong and committed as his predecessor,” according to Garcia and colleagues. “We suspect that markets, when in doubt, would rather buy than sell the euro.”

Whoever succeeds Draghi depends on a carve-up of senior European Union positions that the bloc’s leaders are planning after the European Parliament elections in late May. That negotiation will focus firstly on nationality, though leaders know they need to choose someone suitable for the job too.

UBS Predicts Euro Appreciation No Matter Who Takes Over ECB Helm

The analysts reckon Germany’s Jens Weidmann and France’s Francois Villeroy de Galhau have good odds of being appointed, depending on which country claims the European Commission presidency. Finland’s Erkki Liikanen and Olli Rehn are also likely candidates.

The euro’s gain will likely be more sustained if Weidmann or Rehn are chosen, according to the report, as they are more conservative than other candidates, who might only trigger a currency rally in the initial phase. While ECB decision-making is usually consensus-driven, “the personality and the character of the president make a difference, and we should not underestimate the impact Draghi had on the euro during his term.”

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