Bloomberg surveyed 50 top economists which forecasted September’s meeting as the most likely in the European Central Bank announcing of additional stimulus measures. 80% of these economists project ECB Chief Mario Draghi and his team to extend quantitative easing for a second time as well.
The ECB policy meeting is set on September 8. The said conference for foreign exchange rate traders is quite the featured event for this week, as it is causing uneasiness to loom on the bank introducing new measures that could drag the euro.
Extending QE into 2018
With euro-area inflation fixed almost zero for nearly two years and the Brexit event now jeopardizing to undercut the region’s rebound, economists are betting President Draghi to lengthen quantitative easing for a second time.
It would take the asset-purchase program beyond its current end-date of March 2017 and hovering above the target of €1.7 trillion, tantamount to $1.9 trillion.
The euro-area economy lost momentum last month, with a gage of private-sector growth dropping to the lowest since early 2015 ahead of the policy meeting due this Thursday.
Most economists agree as well on projecting the ECB altering its purchasing rules to prevent running out of securities to buy. Officials are predicted to eventually be forced to add stimulus to sustain the recovery of the Eurozone and increase inflation, despite in disagreement on when more measures will be reported.
“The survey data will fuel expectations that the ECB would prefer not to wait before injecting more stimulus into the economy,” Chris Williamson, chief business economist at IHS Markit, cited and added that policy makers will be under pressure “to act later this week to help shore up confidence in both the outlook for the economy and the bank’s commitment to its inflation target.”
There are suggestions that the September interest rate meeting may trigger additional rate slashing and/or a raise in the asset purchase program.
This action is estimated to weaken the euro more, however there has been growing proof that the ECB is actually losing its ability to hurt the currency and accelerate inflation. Recent inflation data report have established inflation lingers low while the euro hovers above 1.10 vs the dollar and 0.8250 against the British pound.
Despite the chance of further action, there are suggestions that the ECB has emptied its armory and the euro’s most probable reaction will be to strengthen. This will be a key issue for the GBP/EUR's recovery and strength may remain narrow.
The euro has been weakened remarkably over the years by previous ECB policy that has seen interest rates axe into the red and the introduction of a QE program. In turn, both sterling and the greenback have surged notably since year 2010.
As of 10:34 GMT, EUR/USD is up 0.08% to 1.1164, notably because the dollar fell on weak US nonfarm payrolls report released Friday. Indicators are pointing upwards, but it’s likely that this will end up as a short rally in the latter part of the session. The pair remains volatile in between its resistance and support levels of 1.11892 and 1.11323 respectively.
Especially in the coming meeting for Thursday, euro is bound to be defensive and brace itself for the outcome of the ECB conference. Additionally, given with the information above, it is noted euro has not been doing great in recent years. Short-term bulls are what you can expect mostly.
The dollar was barely changed last Friday even after the jobs report was released. The effect of it had just taken over on Monday’s session as the current candle is a bullish one. However, with just a meager increase of the euro over the dollar today, it won’t seem it will remain in the green for long.
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