ECB preparing markets for an announcement about its QE

The ECB appears to be working hard to prepare markets for an announcement about its QE plans for 2018, next Thursday, suggests Kit Juckes, Research Analyst at Societe Generale.

Key Quotes

“An extension of QE is widely anticipated, but with some Council members canvassing for the programme t to end in 2018 and for the absolute size of the balance sheet being limited, the choice is between a faster pace or a shorter period of time, and slower bond-buying for longer. Buying less for longer without an explicit commitment to stop the programme on a given date is a likely compromise, which is hoped by some to push expectations of the first rate increase well into 2019 and thereby avoid putting upward pressure on the euro. Anatoli thinks we end up with none month extension at EUR 25bn per month, possibly also buying debt with longer maturities.”

“The FX implications are modest, though at the margin a slower pace of buying puts a floor under yields. The idea that pushng the first rate hike further away will hold the euro down doesn’t really make sense to me in the current environment. If markets conclude that QE IS going to end in 2018, they will also conclude that the ECB remains firmly on a path back to normal policies. I don’t see how a clear path to policy normalisation, combined with solid growth and a sizeable current account surplus, are consistent with a EUR/USD rate that is 7-10% below ‘PPP’ and 9% below the average of the last decade. EUR/USD is stuck in its 1.1660-1.1890 range and doesn’t look set to break out, but we still expect 1.27 by the end of 2018, and we expect EUR/JPY to go on rising steadily towards 140.”

Share: Feed news

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.