Is the European Central Bank getting ready for a “no hike” decision for the Fed? In any case, they keep the pressure on the euro.
Two members of the ECB’s Governing Council are talking more loudly of more QE – more bond buying or euro-printing if you wish, and that weighs on EUR/USD ahead of the Fed.
Update: EUR/USD further hit by weak inflation.
Ewald Nowotny, the Austrian member of the central bank, said that an extension of QE is “thinkable”, perhaps already under consideration.
And Draghi’s right hand, VP Vitor Constancio, said clearer words: “there is scope to increase QE if necessary” and also went on to explain that the ECB’s QE is relatively small in comparison to other countries (emphasis mine):
“We said at the last press conference that the size, composition and duration of our present large scale asset purchase programme can be changed. The total amount that we have purchased represents 5.3 percent of the GDP of the euro area, whereas what the Fed has done represents almost 25 percent of the U.S. GDP, what the Bank of Japan has done represents 64 percent of the Japanese GDP and what the U.K. has done 21 percent of the UK’s GDP. So we are very far from what the major central banks have done using these instruments. But this is not a benchmark, I mentioned that as an illustration. There is scope, if the necessity is there.
This certainly sounds like a preparation to introduce a more intense and a longer program, perhaps in December or already in October. The ECB currently buys at a rate of 60 billion euros per month, and the end date is September 2016.
EUR/USD is trading at 1.1260, below the close of 1.1330 seen on Friday and moving lower despite the markets holding their breath towards the Fed decision tomorrow.
What will we hear from the Fed?
Fed preview: hawkish talk or dovish hike? 4 scenarios
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