ECB Review: QE path not defined yet but slower purchases are coming
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The ECB kept all policy measures unchanged and sent a dovish message by still signalling its readiness to increase the size and/or duration of QE purchases.
According to President Mario Draghi, the Governing Council was unanimous in setting no precise date on when to discuss changes to the QE programme but argued ' our discussion should take place in the autumn '. Additionally, Draghi said the ECB has not tasked its staff with looking at QE options after December 2017.
The above suggests the ECB is not ready to make an announcement at the September meeting on how QE purchases will continue in 2017. We maintain our view that the ECB will continue its QE purchases but at a reduced pace of EUR40bn per month in H1 18 but now believe this will be announced at the October meeting (previously September).
Today's decisions by the ECB reflect its increased focus on the inflation outlook versus the economic recovery compared with what was communicated in Draghi's speech at the ECB forum in Sintra. On a more hawkish note, Draghi argued the financing conditions remain broadly supportive but he also said financial tightening was 'the last thing' the ECB needs.
The euro generally gained during Draghi's press conference and EUR/USD still trades in overbought territory, in our view. Hence, we see risks skewed on the downside in the near term. In particular, we note that EUR/USD price actions contrast with European fixed income markets, where, for example, 2Y EUR swap interest rates fell back after the press conference while EUR/USD remained higher.
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