Luc Luyet, Currency Strategist, and Alessandro Cortese, Foreign Exchange Strategist, Pictet Wealth Management.

ECB's hawkish pivot improves euro's outlook :

• The hawkish shift in ECB rhetoric at its February monetary policy meeting suggests that short-term rate differentials may turn less negative for the euro.
• More importantly, net portfolio investment flows into euro area debt securities could significantly improve, reversing the outflows that stemmed from the ECB’s introduction of negative rates and asset purchases programme in 2014 and 2015.
• Consequently, we have decided to revise upward our EUR/USD projections to take into account more limited downside risks in the short term and scope for some upward surprises in the medium term. Our projections for the euro are now USD1.13 in three months (vs. USD1.10 previously), USD1.15 in six months (vs. USD1.10 previously) and USD1.19 in 12 months (vs. USD1.15 previously)