ECB: Dovish form of QE tapering is still conducive environment for carry - ING

Despite the EUR strength of past months being in great part derived from building market expectations of ECB QE tapering, Petr Krpata, Research Analyst at ING suggests that they don’t expect a material and negative spill-over into the attractiveness of EM carry trades.

Key Quotes

“The strong EUR will in our view translate into the ECB opting for a dovish form of QE tapering. This should in turn limit the upside to bund yields (and thus long-end core yields). In effect, this less aggressive form of ECB policy normalisation should further prolong the current carry-conducive environment. Our top pick remains TRY, given its highest nominal and risk adjusted carry in the liquid EM FX space.”