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ECB bar for more easing quite high now - Danske Bank

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 3, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Córdoba) - According to analysts from Danske Bank, the less aggressive move from the European Central Bank (ECB) together with today’s communication indicates that the bar for more easing is quite high.

    Key Quotes:

    “Markets priced a 15bp deposit rate cut ahead of the meeting and most analysts also expected an expansion of the monthly purchases, hence the measures were not enough to fulfil expectations.”

    “We had also expected the ECB to reintroduce its old forward guidance on possibly lower policy rates, implying some probability of an additional cut could still be priced in, but this was not the case. The decision taken today was not unanimous, but based on a large majority. It remains unknown whether some ECB members had argued for more or less easing, but compared to Draghi’s previous very dovish comments, it could be that he had argued for more aggressive easing.”

    “The less aggressive move from the ECB together with today’s communication indicates that the bar for more easing is quite high. Hence, although the ECB did not deliver the menu of easing we had looked for, we expect the easing today to mark the end of easing.”

    “In the near term, base effects should lift inflation above 1.0% as early as January and the latest economic survey indicators also point to a stronger recovery in 2016. Moreover, with the Fed set to start hiking in December, the downside to EUR/USD from relative rates should weigh on a 3M horizon.”

    “The risk to our expectation of the end of easing is that the ECB will eventually be forced to lower its core inflation forecast, which, in our view, is still too optimistic. Related to this, the ECB will be challenged by EUR appreciation pressure and the negative impact on inflation. That said, as the unemployment rate quickly approaches its structural level of 9.9%, wage pressure should return and ECB will not ease again.”
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