Tapering With a Twist
|The ECB announced today that it will begin tapering its asset purchases from April next year in a clear sign that it is reaching the limits of what it is willing to do under the bond buying program. It's clear that there were other options available to the ECB today and yet, there was not the support within the monetary policy committee to enact such changes.
Despite an initial spike, the euro is not behaving like a taper has just been announced and instead is making new lows for the day. The reason for this is that we have not just had a normal tapering of QE, the ECB has delivered a taper with a twist. The number of purchases has been reduced but the expiry has been pushed back to December, rather than September which is what was expected.
The result is that the ECB has committed to buying €540 billion of debt rather than €480 billion, which it would had the monthly bond purchases not been reduced and the program extended by six months. While this may be a neat little trick by the governing council, it's only technically a larger stimulus package if they would have otherwise reduced purchases to zero from September, which is extremely unlikely.
That being the case, what we've seen today is Draghi and the ECB playing the game and with the euro currently lower, they're winning. The reality is that this is still a tapering and still less stimulus than the markets were pricing in and once the initial frenzy passes, I expect markets will recognise this. Now it's over to Draghi to convince us otherwise.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.