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The minutes from the European Central Bank (ECB) meeting held in September were released on Thursday and the comments on foreign exchange certainly highlighted the increased focus this is now getting from the ECB. Economists at MUFG Bank have made two conclusions from the details of the minutes. 

Key quotes

“There does appear to be a genuine concern that didn’t really come across in the press conference. Numerous references were made to FX and most interesting was the comment in the minutes that EUR appreciation was seen as linked to ‘market perceptions of the scope for further changes in monetary policy in different jurisdictions’. Therefore, the ECB should ‘avoid complacency’ and the perception amongst global investors that EUR direction could become a ‘one-way bet’. A clear message we believe that the ECB must strive to counter EUR bullish sentiment that could ultimately culminate in monetary action.”

“In the debate of the ECB needing to ease its monetary stance further, EUR gains will increasingly become a factor. However, more QE is unlikely to have any meaningful impact on curtailing EUR strength. We argue PEPP QE that reduces fragmentation risks is very different to Fed QE geared solely to cap yields or drive yields lower and hence the QE policies, net-net, are EUR/USD bullish.”

“Only if serious consideration is given to taking the ECB deposit rate deeper into negative territory would the EUR be notably impacted.”