The European Central Bank’s meeting and subsequent minutes is the key event this week. This is the first of a number of key central bank meetings over the next few months and will be carefully watched as to what tone this meeting sets as we draw close to the end of the year.
As the UK and US consider a possible interest rate hike towards the end of the year, the ECB are still trying to stimulate inflation levels across the Eurozone through their asset purchasing programme. However, Mario Draghi has recently cited improved economic activity across the Eurozone of late and as a result is largely expected to announce a ‘dovish tapering’.
This announcement is expected to say that asset purchases will be lowered to €30bn a month, a 50% drop from what is currently being bought and this is expected to run past the March end date until September. If Mr Draghi were to take a more hawkish tone at the meeting, then the Euro is likely to strengthen dramatically.
Mario Draghi has already voiced some concerns that the recent strength of the Euro is starting to hurt stronger economies such as Germany and France’s export industry, Mario Draghi has to be careful as to not be too positive – and will probably keep the door open to increase the asset purchase scheme if he sees necessary.
Economics aside, politics in the Eurozone are still weighing on investors’ minds. Over the weekend, the Spanish government ordered the dissolution of the Catalonian regional parliament in Spain. This is likely to be met with protests across the Catalan region, which could be costly for the Euro. Nearly 800 people were injured in the last protests by the Spanish police. I expect this to cause some significant unrest for the Euro in the coming weeks.