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prensaestatal.com Noviembre 21, 2017


Strong Euro Puts QE Tapering in Doubt

07 Setiembre 2017, 12:46 | Dolorita Barahona

Strong Euro Puts QE Tapering in Doubt

GBP  JPY Daily Chart

The euro has strengthened robustly since late June, when Draghi's comments in Sintra, Portugal, fed market expectations of an imminent tapering and sent yields and the euro soaring. On top of all this, Federal Reserve Vice Chairman Stanley Fischer submitted his resignation hours before President Trump and congressional leaders agreed to raise the debt ceiling for 3 months.

Indeed, in the U.S., sentiment towards politics and policy has deteriorated as a result of escalating tensions with North Korea and poor cooperation between the White House and Congress. Ireland saw an improvement in both manufacturing and service activities. Looking ahead with no major USA economic reports scheduled for release on Thursday, we would not be surprised to see USD/JPY extend its gains.

Elsewhere, the New Zealand and Australian Dollar's ended trading as just about the two best performing currencies in the world. As we know, EURUSD is up 15% in 2017.

Underwhelming Eurozone data and a Pound recovery from its recent lows have seen the Euro to British Pound exchange rate drop again this week.

It is, therefore, critical to evaluate the market implications of the anticipated tapering of its purchases and assess the most probable timetable. As we outlined earlier in the week, we think that risks to the Euro are skewed to the downside ahead of the meeting. If the RBA wanted the market to back off, they didn't do a very convinicing job. Contributions of 200 words or more will be considered for publication.

"Our forecast that the currency will end this year and next at $1.15 is reliant on renewed tightening by the US Fed and some easing of geopolitical concerns and related safe haven flows", McKeown said.

We do not expect this trend to reverse anytime soon and believe monetary policy is likely to continue to have little role to play. Although the ECB refrained from giving any hints regarding the future of its QE program, the steady recovery in the Eurozone's economy and the ECB's improved rhetoric helped forming expectations that the bank will start tapering its monthly purchases after September. This is why I expect that the central bank will deem that it's premature to exacerbate this phenomenon by introducing major changes to its current asset purchase program. USA gold futures GCcv1 gained 0.07 percent to $1,345.40. For this reason, we think the European Central Bank will go ahead with reducing asset purchases on Thursday.

Tapering will come, but the question is when!

"Putting more effort into explaining why the euro is rising on it and on how the balance sheet will continue to deliver stimulus even after tapering could allow for gradual tapering", said European Central Bank watcher Anatoli Annenkov of Societe Generale in a note.

The euro EURUSD, +0.1259% fetched $1.1922, up from $1.1915 late Tuesday in NY.

Jens Weidmann, the president of the Bundesbank, Germany's central bank, told a newspaper three weeks ago that there was a case for a "quick and orderly exit" from the ECB's asset purchases.

The Bloomberg Commodity Index was slightly lower after gaining 0.4 percent Wednesday to the highest since April. This is an adamant rule more hard to circumvent than the capital key - otherwise, according to the rules on new clauses on European public debt (the notorious CACs, Collective Action Clauses), Draghi would acquire as a creditor too many veto rights in the event of renegotiation (or redenomination) of the debt. The dollar retreated against major peers as North Korean jitters overshadowed the deal to extend the US debt limit for three months.



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