ECB: Only conclusion one can draw is that the asset purchases will continue - BBH

Research Team at BBH, notes that the euro is extending its push to seven-month lows, after staging a big outside day yesterday, as short-term operators were whipsawed during the ECB's press conference.  

Key Quotes

“As North American dealers return to their posts to close out the week, the euro is trading below the Brexit low.  Assuming the euro does recover much ahead of the weekend, this will be the fourth consecutive session that the euro declined.  In fact, the euro has fallen in 11 of the last 15 sessions.  

The financial media and some pundits make it sound as if Draghi left investors in a lurch by not acknowledging that the ECB is discussing extending its asset purchases. Yet the market does not seem confused.  The ECB is widely expected to extend its purchases beyond March of next year.    

There seems to be good reason that there is no need for such a discussion now.  It is premature, and the sequence is important.  The ECB instructed Eurosystem committees to conduct a technical review of monetary policy.  That report is not complete.  The staff forecasts need to be updated to make an informed decision about what may be needed going forward.  

Draghi also provided a strong hint into the criteria.  First, he said that the ECB will continue its asset purchase plan until Mach 2017, or until inflation is showing significant progress toward the target.  Second, he said that inflation is not yet on an upward trajectory.  Third, Draghi said the growth risks were on the downside.  

Even without being explicit, the only conclusion one can draw from this is that the asset purchases will continue.  Many, if not most, expect a six-month extension.  Of course, the extension may not enjoy unanimous support.  For those who opposed the asset purchases in the first place, it is difficult for them to support an extension.  They were a minority then and still look to be in a distinct minority.”