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26 Aug 2014
ECB’s QE still lingers amongst traders – BTMU
FXStreet (Barcelona) - Derek Halpenny, European Head of Currency Strategy at the Bank of Tokyo Mitsubishi UFJ, assessed the recent appreciations by President Draghi at Jackson Hole.
Key Quotes
"The build-up to Jackson Hole was all about Fed Chair Yellen and whether there would be any notable shift in stance in regard to conditions in the US labour market but in the end it was the speech by ECB President Draghi that took centre-stage with comments suggesting more needed to be done in order to get the euro-zone economy going again and in turn limit the downside risks to deflation. The crucial comments from Draghi that during August “financial markets have indicated that inflation expectations exhibited significant declines at all horizons” and that the ECB “will acknowledge these developments” have understandably fuelled expectations of further monetary easing to come and will certainly heighten expectations of action going into the meeting on 4th September."
"The unhinging of inflation expectations to the downside is a major admission and if the evidence persists then large scale QE is certainly much more likely. However, Draghi also expressed confidence in his speech that easing measures announced in June will have the intended impact of lifting final demand."
"Hence, the ECB will at least wait until the two LTROs are conducted in September and December. The ECB could also launch some form of ABS QE before a wider large-scale sovereign debt QE program is launched".
"Indeed, the ABS QE program may be something we get much more detail on at the coming monetary policy meeting. It is perhaps feasible that the ECB could consider another rate cut. At 0.15%, the refinancing rate could easily be cut a further 5 or 10bps."
Key Quotes
"The build-up to Jackson Hole was all about Fed Chair Yellen and whether there would be any notable shift in stance in regard to conditions in the US labour market but in the end it was the speech by ECB President Draghi that took centre-stage with comments suggesting more needed to be done in order to get the euro-zone economy going again and in turn limit the downside risks to deflation. The crucial comments from Draghi that during August “financial markets have indicated that inflation expectations exhibited significant declines at all horizons” and that the ECB “will acknowledge these developments” have understandably fuelled expectations of further monetary easing to come and will certainly heighten expectations of action going into the meeting on 4th September."
"The unhinging of inflation expectations to the downside is a major admission and if the evidence persists then large scale QE is certainly much more likely. However, Draghi also expressed confidence in his speech that easing measures announced in June will have the intended impact of lifting final demand."
"Hence, the ECB will at least wait until the two LTROs are conducted in September and December. The ECB could also launch some form of ABS QE before a wider large-scale sovereign debt QE program is launched".
"Indeed, the ABS QE program may be something we get much more detail on at the coming monetary policy meeting. It is perhaps feasible that the ECB could consider another rate cut. At 0.15%, the refinancing rate could easily be cut a further 5 or 10bps."