Research Team at Deutsche Bank has built a policy rule to describe the ECB’s reaction function and to infer the future path of monetary policy. 

Key Quotes

“According to our strategists, current market valuations are consistent with QE tapering ending in the second half of next year. Markets seem to price in a deposit rate hike in Q2 2018 and a subsequent MRO hike in Q3 2019.”

“The combination of the ECB projections and our policy rules would suggest that markets are overly dovish. If the ECB Governing Council remains confident about their staff above-consensus projections, markets would have to bring forward (i) an increase in the deposit rate to the second half of this year, (ii) their expected QE termination date to the first half of 2018 and (iii) the first MRO rate hike to Q3 2018.”

“Naturally, using the less-optimistic consensus forecasts, the discrepancy is less accentuated – but markets do continue to appear moderately dovish.”

“We think the ECB will follow a gradual exit strategy:

  • June 2017: forward guidance could be changed by dropping the reference to lower rates and the language could be modified to allow the deposit rate to move independently of the MRO rate in the short term.
  • September 2017:  the ECB could announce (i) the start of QE tapering in January 2018 and (ii) a one-off 15-20bp deposit rate hike to be implemented by the end of the year.
  • Mid-2018: the QE tapering process ends. 
  • December 2018: the normal but gradual MRO rate hiking cycle begins.”

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. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news Join Telegram

Recommended content


Recommended content

Editors’ Picks

EUR/USD extends slide toward mid-1.0200s after US data

EUR/USD extends slide toward mid-1.0200s after US data

EUR/USD continues to decline toward 1.0250 during the American trading hours on Friday. After the data published by the UOM showed that the long-run inflation outlook rose to 3% in August from 2.9% in July, the dollar gathered strength against its rivals, weighing on the pair.

EUR/USD News

GBP/USD pushes lower 1.2100 on broad dollar strength

GBP/USD pushes lower 1.2100 on broad dollar strength

GBP/USD is trading deep in negative territory near 1.2100 during the American session on Friday. With the UoM's Consumer Sentiment Survey pointing to a modest increase in the long-run inflation outlook, the US Dollar Index extended its rally, reflecting a broad dollar strength.

GBP/USD News

Gold clings to modest gains above $1,790

Gold clings to modest gains above $1,790

Gold stays relatively resilient on Friday and trades modestly higher on the day above $1,790. Although the greenback continues to outperform its rivals on the latest US data, falling US Treasury bond yields help XAU/USD hold in positive territory.

Gold News

Shiba Inu ready to go ballistic: Shiba Eternity released in Vietnam

Shiba Inu ready to go ballistic: Shiba Eternity released in Vietnam

Shytoshi Kusama, the project leader of Shiba Inu announced the launch of Shiba Eternity for Vietnamese players. The game is available for testing and the team has asked users for their review. 

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

Forex MAJORS

Cryptocurrencies

Signatures