ECB likely to announce reduction in QE purchases from 2018 in September

ECB communication turned hawkish recently, in line with other global central banks, with Mario Draghi arguing that a monetary policy tightening might be required in order to keep the policy stance ‘broadly unchanged’, noted Danske Bank in a research report. These comments were meant to prepare the market for a reduction in QE purchases from next year, which might be announced during its meeting in September.

“We still expect the ECB to continue its QE purchases but at a reduced pace of EUR40bn per month in H1 18, keeping the end-date dependent on the inflation outlook. That said, we believe it is most likely the ECB will taper towards zero in H2 18”, stated Danske Bank.

Moreover, June meeting minutes showed that the ECB discussed whether to revisit the QE easing bias where it hints its readiness to increase the size of QE. The central bank is likely to discuss this easing at the upcoming meeting but it might deliver just a minor twist and remove its readiness to increase the size of QE while maintaining the flexibility in terms of duration, said Danske Bank. Also, the ECB might add that the duration part of QE would be reconsidered at September’s meeting.

In spite of the hawkish comments, the ECB has also shown concern about an unwarranted tightening of financial conditions.

“We still see EUR/USD in a range around 1.13 near term but risks remain on the upside longer term”, added Dankse Bank.

At 22:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral at -36.3305, while the FxWirePro's Hourly Strength Index of US Dollar was bearish at -94.3269. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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