A hawkish turn with a dovish twist


EURUSD slid on the ECB news, which finally saw the Bank put an end-date on QE, though at the same time, said interest rates won’t rise until late 2019 at the earliest. The pairing slid to seven-session lows of 1.1718 from near 1.1820.

ECB confirms QE to end in December this year – rates to stay on hold at least through summer of 2019. The central bank confirmed that asset purchases will run at the current schedule of EUR 30 bln per month to September, monthly purchase volumes will then be reduced to EUR 15 bln and end in December. So much so expected and Draghi also confirmed that the stock of assets will be maintained “for an extended period of time after the end of net asset purchases”. The key focus was on the guidance on rates and here Draghi sent a dovish signal that squashed speculation that the early commitment to a phasing out of QE would also mean early rate hikes. Instead the statement reads that “the Governing Council expects the key ECB asset rates to remain at their present levels at least through the summer of 2019 and in any case as long as necessary to ensure that the evolution of inflation remains aligned with the current expectations of a sustained adjustment path”. So nothing on rates for at least a year and Bunds rallied on the announcement, with the 10-year yield down -0.4 bp at 0.474%.

EGBs rallied on the ECB announcement, which confirmed that QE will be phased out, but at the same time sent a dovish signal on rates, which won’t rise before autumn 2019 at the earliest. So once again a hawkish turn with a dovish twist and once again a market friendly announcement, with bonds rallying on the statement and the 10-year Bund yield falling back to an intra-day lows of 0.4579%, from levels around 0.5% shortly ahead of the announcement. The 10-year is currently settling in around 0.46% mark, down -1.4 bp on the day.


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