Investment takeaways from ECB year-end meeting

• ECB growth expectations: The Eurozone is ending 2017 on surprisingly strong footing, resulting in a significant upward revision for GDP growth in 2018 (from 1.8 to 2.3%).

• ECB policy: With inflation expectations mainly unchanged, the ECB is maintaining its accommodative stance for monetary policy and we do not expect this to change to June next year, when it is possible that after six further months of still strong growth, the bank’s position (and perhaps the forward guidance) could shift to being less dovish.

• Euro: After a period of relative stability for the EUR/USD, in the coming months, we expect the euro to appreciate vs the USD, but with limited upside potential. In 2H18, we could see appreciation of the EUR vs the USD towards 1.22.

• Fixed income investing: We offer four adjectives to describe the right investment approach that fixed income investors should consider for 2018: flexible, dynamic, tactical and active. Bonds with low absolute yields represent an area where investors should be cautious, while high beta credit and selective peripheral government bonds could be areas of opportunities.

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