One of the week’s key developments will be the European Central Bank (ECB) meeting, which is scheduled for Thursday. Following last month’s meeting minutes, speculation that the ECB could announce an end date to its Quantitative Easing (QE) programme. At the last meeting they signalled that an update would be provided in early 2018.
At present, the ECB has committed to buying €30bn worth of Euros each month until September. This was reduced from €60bn at the start of this year, and the markets are looking for guidance as to how long this will continue on for after September. Any announcement that their QE programme will remain in place beyond this September’s deadline could weaken the Euro. Alternatively, any hints as to whether this will be concrete is likely to strengthen the Euro.
The start of the week has brought with it some uncertainty as to what will happen this Thursday. The Eurozone economy has been performing very well of late however inflation, which is a key indicator of whether a Central Bank may adjust monetary policy, is still well below the target level set by the bank, currently core inflation remains at 0.9%, well behind the 2% target set.
Overall, the markets are not expecting a shift in policy at this month’s meeting. A strong Euro and its negative effects on the Eurozone recovery was mentioned by three separate ECB council members last week and I believe that Mario Draghi, ECB president will remain tight lipped for now regarding the end date of the ECB’s Quantitative Easing policy, as to not help the Euro strengthen unexpectedly.
The next policy meeting is scheduled for after the Italian elections, and is expected to be when Mario Draghi is likely to announce any change to QE. It is now a question of whether the markets will look through this play and cause the Euro to strengthen further.