GBP depreciated significantly last week as perceived risks of an EU exit increased. In a way, the agreement seems to be a positive development but not suffice to cushion GBPUSD rout, but EU exit risk has negative implications for the EUR too, and EURGBP should correct lower. Some reversal in recent GBP weakness against the USD is also possible this week given an upbeat PMIs for February forecasts.

The ECB most probably wants to ease its monetary policy but is reaching legal limits, especially if it decides big moves. In our view, the changes in the QE design that are necessary for a marked expansion of the bond purchases appear questionable from a legal perspective.

Everyone dealing with Euro expecting ECB to increase easing volumes, but for now it seems unlikely that the QE volume has to be increased to € 70, 75 or 80 billion and the deposit rate is lowered by 10, 15 or 20 bps. , the expectation on an extension to ECB QE in Sept 2016 which should flatten the path for EURO crosses next year.

No solution either: "Helicopter money" with the ECB apparently recognizing the legal limits of the QE programme, it appears likely that the central bank is pondering alternative measures.

A proposal repeatedly heard, especially in the recent past, is the so-called helicopter money9 . This means a transfer of money to all citizens that is paid for by the central bank. But the legal bar to this measure is also very high, as ECB Vice President Constancio mentioned in the recent past that "the original idea of helicopter money referred to the direct financing of public spending. This is no option for us. This is nothing we are considering. As President Draghi said concerning this issue, the EU Treaty prohibits us from directly financing euro area governments."

FX market intervention Another (theoretical) option is to depreciate the currency by selling euros on the FX market, thereby fueling inflation.
But, there are legal limits: In their London accord of February 2013, the G7 central banks agreed a ban on open exchange rate manipulation. Exceptions apply only in case of "disorderly markets" and "excessive volatility".