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ECB Discussed How Best to Reduce Its QE Program, Euro Eases Gently

ECB Discussed How Best to Reduce Its QE Program, Euro Eases Gently

Martin Essex, MSTA, Analyst

Talking Points

- European Central Bank policymakers, meeting on September 7, discussed how best to taper the ECB’s asset purchase program and expressed concern about the Euro’s rise.

- However, with a tapering already expected early next year, the Euro eased back.

What Does the Fourth Quarter Hold for the Euro, Equities, Oil and Other Key Markets? Find out here

The minutes of the September 7 meeting of the European Central Bank’s Governing Council reveal that its members discussed how best to taper its asset-purchase program (APP) and the trade-off between various courses of action.

The Council’s policymakers “discussed some general trade-offs inherent in various scenarios for the future recalibration of the APP and, in particular, the choice between the pace and the intended duration. Within the framework of the Governing Council’s forward guidance, the benefits from a longer intended purchase horizon, combined with a greater reduction in the pace, were compared with those from a shorter period of purchases and larger monthly volumes," according to the minutes.

The ECB is widely expected to pre-announce a reduction in the monetary stimulus it provides to the Euro-Zone economy at either the next monetary policy meeting of its Governing Council on October 26 or the one after, on December 14, prior to a start early next year.

The markets are currently expecting bond purchases, which are due to expire at the end of this year, to be cut to €40 billion per month from the current €60 billion and for the program to be extended by six to nine months. Against this background, there was little to affect the Euro in the latest minutes and the currency failed to react strongly.

Chart: EUR/USD Five-Minute Timeframe (October 5, 2017)

ECB Discussed How Best to Reduce Its QE Program, Euro Eases Gently

Chart by IG

The Council also expressed concern about the Euro’s strength, with the ECB’s Chief Economist Peter Praet commenting that “the recent volatility in the exchange rate represented a source of uncertainty that required close monitoring with regard to its possible implications for the medium-term outlook for price stability.

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

Follow Martin on Twitter @MartinSEssex

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