Earlier rate hikes could erode the ECB’s credibility - Nomura

Analysts at Nomura explained that rate hikes before QE ends, unlike the current forward guidance, would push up EUR more aggressively. 

Key Quotes:

"The historical relationship suggests EUR tends to react to the shortend of the curve more than the long-end. 

Moreover, earlier rate hikes could erode the ECB’s credibility as a deflation fighter in the medium term, which could cause EUR to strengthen more significantly. 

We currently expect the ECB’s next policy normalisation step to be communication of tapering, but EUR upside risks could be more significant if ECB members continue to suggest weaker commitment to the current forward guidance."