ECB Preview: Euro bulls urge money printing

The upcoming European Central Bank (ECB) meeting on Thursday, March 11 comes on the backdrop of rising bond yields in the old continent – something the bank is eager to curb. Yohay Elam, an Analyst at FXStreet, lays out three scenarios for the ECB decision and the euro.

Key quotes

“The ECB is set to leave its deposit rate at -0.50% and its bond-buying scheme at its current size of €1.85 trillion. Lagarde will likely repeat her previous messages that the rise in yields is undesired – and that would be insufficient to lift the euro. In this scenario, yields on German, French, Italian, and other bonds would receive a green light to march higher. This outcome has a high probability and would send the euro down.”

“One potential compromise is to upgrade the warnings of the bank and give the market one last chance to push yields down. Lagarde could promise action in the upcoming April meeting if returns on debt costs remain burdensome. In this scenario, which has a medium probability, the euro could rise on prospects of more money injected into the economy – at least by keeping the government's borrowing costs low.”

“If the ECB announces a surprising increase of some €500 billion to its bond-buying scheme – and especially if this buying is mostly done imminently – it could turn the picture in favor of the euro. In this scenario, which has a low probability, the euro would soar.”