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Euro to Strengthen as ECB Rethinks Expanding its Bond-Buying Program

Euro to Strengthen as ECB Rethinks Expanding its Bond-Buying Program

Martin Essex, MSTA, Analyst

Talking Points

- The minutes of the last European Central Bank policy meeting reveal that it considered dropping its pledge to expand or extend its bond-buying program if warranted.

- That’s positive long-term for the Euro as it brings a tightening of monetary policy closer.

- Want to know where the Euro is heading?Check out our brand new Trading Guides: they’re free and have just been updated for the third quarter of 2017.

The Euro advanced modestly and could strengthen further in the days ahead after the minutes of the European Central Bank’s policy meeting on June 7/8 revealed that it considered dropping its pledge to expand or extend its bond-buying program if necessary. While it decided not to do so, the fact that it was even considered suggests that a “tapering” of its monetary stimulus to boost the Euro-Zone economy is coming closer.

It will likely be discussed again in future meetings even though Euro-Zone inflation is currently weak, with the minutes noting that “if confidence in the inflation outlook improved further, the case for retaining this [easing] bias could be reviewed.”

EUR/USD climbed on the news but the reaction was mild as the central bank also stressed that it did not want to upset the markets by giving the impression that it was moving away from its policy of low interest rates and huge asset purchases.

Chart: EUR/USD Five-Minute Timeframe (July 6, 2017)

Euro to Strengthen as ECB Rethinks Expanding its Bond-Buying Program

Chart by IG

Nonetheless, the prospect of an eventual reduction in the ECB’s asset-purchase program should be a positive factor for the Euro.

--- Written by Martin Essex, Analyst and Editor

To contact me, email me at martin.essex@ig.com

Follow me on Twitter @MartinSEssex

And join me tomorrow, Friday, at 0815 GMT for live coverage of the UK trade and industrial production figures. Can a wider trade deficit send the British Pound lower? Any questions beforehand? Just let me know

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