Nick Kounis, senior economist at ABN AMRO explained that Governing Council could give guidance on pace of rate normalisation.
Key Quotes:
"ECB Executive Board member Benoit Coeure gave a speech on forward guidance today. Mr Coeure has set out the ECB’s thinking on the impact of QE and the central bank’s exit strategy in the past, which have proved to be very informative about its subsequent actions. So his speeches are well worth following. There are a two important take-aways, most importantly that the next stage of the guidance will be to clarify the pace of interest rate normalisation."
"First of all, the Executive Board member makes a defence of the effectiveness of the ECB’s forward guidance up until now. In 2013, the Governing Council introduced state-contingent forward guidance, while in June of this year it made that guidance more specific by clarifying that interest rates would remain at their present levels at least through the summer of 2019. He argues this guidance has been successful in ‘reducing uncertainty around the expected future path of short-term interest rates’. He argues that the more specific approach to forward guidance is also vindicated by the stubbornly low inflation and that the risk of the ECB ‘failing to anticipate a much slower than usual return of inflation to pre-crisis levels – may be uncomfortably high’. Furthermore, it is justified by the fact that ‘unwinding policy accommodation in a multi-dimensional policy space is terra incognita for both financial markets and policymakers’."
"Second, Mr Coeure argues that ‘communication about lift-off expectations is…only a first step in managing the transition towards policy normalisation’. He is not in favour of publishing a projection of the future path of short-term interest rates conditional on the macroeconomic outlook. Instead, he argues that ‘state-contingent forward guidance could clarify the pace with which policymakers expect to remove policy accommodation beyond the timing to lift-off’ as well as a ‘further clarification of our reaction function’. This seems to imply that the ECB might be more specific about the size of the interest rate increases, their frequency, and the economic circumstances that would be needed for it to follow that course as the first rate hike approaches."
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.
Recommended content
Editors’ Picks
EUR/USD stays near 1.0800 after upbeat US data
EUR/USD stays under modest bearish pressure and trades near 1.0800 in the American session on Thursday. The data from the US showed that the real GDP growth for the fourth quarter got revised higher to 3.4% from 3.2%, supporting the USD and weighing on the pair.
GBP/USD stays in daily range above 1.2600
GBP/USD fluctuates in a narrow channel above 1.2600 on Thursday. The better-than-expected Initial Jobless Claims data from the US and the upward revision to the Q4 GDP growth helps the USD stay resilient against its rivals and limits the pair's upside.
Gold pulls away from daily highs, holds above $2,200
Gold retreats from daily highs but holds comfortably above $2,200 in the American session on Thursday. The benchmark 10-year US Treasury bond yield stays above 4.2% after upbeat US data and makes it difficult for XAU/USD to preserve its bullish momentum.
XRP price falls to $0.60 support as Ripple ruling doesn’t help Coinbase lawsuit against SEC
XRP programmatic sales ruling by Judge Torres was completely rejected by another US Court that ruled in favor of the SEC in a lawsuit against Coinbase.
Portfolio rebalancing and reflation trades emerge into Q2
Yesterday’s price action pointed at a possible end-of-quarter portfolio rebalancing as the session saw the laggards of the quarter like Apple and Tesla gain, and the stars like Microsoft and Nvidia retreat.