In view of Deutsche Bank analysts, the package today from ECB will likely include the first cut in the deposit rate since 2016 at what will be President Draghi’s penultimate meeting in charge. 

Key Quotes

“Our European economists wrote that they expect the ECB to announce a broad policy easing package, but they think the likelihood of QE being a part of that package have declined, as a result of opposition to new QE from some Governing Council members, along with the risk that further QE which flattens the yield curve would be counterproductive for banks. Their view is that there’ll be a 10bp deposit facility rate cut, upgraded forward guidance, and tiering, which would be more positive for banks.”

“In terms of the specifics, they expect the 10bp deposit rate cut will be followed by another 10bps in December, after Draghi has left office, and think the “or lower” easing bias will be maintained. On tiering, they think that the ECB will keep the mechanism simple, although this may come at the expense of a dynamic solution (one that adjusts continuously to the volume of excess liquidity). And on forward guidance, they think that the more likely option will be using guidance to strengthen the symmetry of the inflation target.”

The highest level of uncertainty relates to QE. After Draghi’s dovish Sintra speech, QE became part of baseline expectations. However, our economists are concerned about the inconsistency between QE – big QE at least – and tiering if the latter signals an emergent sensitivity to banking, especially given the fact that some ECB officials have spoken out against new QE over the last few weeks. Even the hawks haven’t really pushed back against rate cut expectations.”

“Our economists adjusted their view on QE last week to anticipate a moderately more pro-banking outcome. That is, a steeper curve which results from no QE or QE targeted at the short end or QE targeted at private assets only. Less QE rather than more, which might be the compromise between hawks and doves, fits with the argument.”

“So this could be the meeting where the ECB implicitly acknowledges that the reversal rate across the whole curve is near to being breeched or has already been.”

 

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.

Feed news

Latest Forex News

Editors’ Picks

EUR/USD tension remains elevated ahead of the Fed

EUR/USD is trading around 1.1050, confined to a narrow range ahead of the all-important Fed decision. Chair Powell is set to cut rates by 25bps but signal no further stimulus is on the cards.

EUR/USD News

GBP/USD extends its falls to 1.2450 amid weak UK inflation, Brexit impasse

GBP/USD has dropped to around 1.2450 as UK headline CPI missed with 1.7% in August. Brexit negotiations remain stuck according to Chief EU negotiator Barnier. The Fed decision is eyed.

GBP/USD News

USD/JPY holds on to recovery gains above 108.00 ahead of Fed

Not only upbeat trade numbers from Japan but upbeat trade/political headlines also help the USD/JPY pair to remain firm around 108.20 prior to Wednesday’s European session. Focus on FOMC decision.

USD/JPY News

Gold: Pivots around $1500 mark, awaits FOMC policy update

Gold extended its sideways consolidative price action through the early European session on Wednesday and was seen pivoting around the key $1500 psychological mark, awaiting FOMC policy decision.

Gold News

Top 3 price prediction Bitcoin, Ripple, Ethereum: Cryptos seeing multiple launches into the universe

The Altcoin market has quickly confirmed Tuesday’s analysis with flashing rises in the last 24 hours. The two eternal aspirants to lead the crypto market – Ethereum and XRP – are rising sharply against Bitcoin and increasing its value rapidly.

Read more

Forex MAJORS

Cryptocurrencies

Signatures