GBP/EUR Slumps as Mario Indicates QE Discussions Set for Autumn

The U.S. dollar rose against the euro on Wednesday a day after touching a more than one-year low, but it hit a more than three-week low against the yen as traders awaited meetings of the European Central Bank and the Bank of Japan, APA reports quoting Reuters.

Bond Strategist at Investec Wealth & Investment Shilen Shah agrees there despite some hints that the European Central Bank is likely to announce that a taper of its bond buying programme at its September press conference, Draghi kept his cards close to his chest.

"While they may be leaning towards an exit from stimulus policies, they don't want to tip their hands yet and the strategy seems to be postponing any decision to September", said Michael Hewson, chief markets strategist at CMC Capital Markets who believes the euro should weaken more from current levels.

The Euro has rocketed, however, after markets responded positively to Draghi's suggestion that discussions on when QE and monetary policy should be changed will happen in the autumn, as economists had expected.

Craig Erlam, senior market analyst at foreign exchange platform Oanda said that the European Central Bank was "fooling nobody" by putting off talk of a stimulus exit.

The ECB's bond purchases began in March, 2015 in an effort to raise inflation and avoid a crippling downward price spiral. This suggests that easy monetary policy will have to continue for years to come.


But wage growth remains anaemic, keeping a lid on inflation, which is likely to undershoot the ECB's target of nearly 2 percent at least through 2019.

However, Draghi denied that the central bankers had discussed adjusting the programme and said that central bank staff had not done any economic analysis on possible options for changing the stimulus programme. Regarding non-standard monetary policy measures, we confirm that our net asset purchases, at the current monthly pace of €60 billion, are meant to run until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.

ECB President Draghi was unable to push the Euro lower and a fresh dollar slide in U.S. trading triggered renewed gold support with prices just above $1,245 despite a lack of investor interest. Inflation stood at 1.3 percent in June, higher than expected but still below the bank's target of 2 percent. The bank is expected to leave its interest benchmark unchanged at zero. The bank has restricted itself to purchasing no more than a third of the bonds issued by any country.

"This is a well-choreographed attempt by Mr Draghi to make sure that financial markets don't get ahead of themselves after his more hawkish comments of late".

The ECB pays for the bond purchases from banks with newly created money.


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