FXStreet (Delhi) – Research Team at Goldman Sachs, suggests that the most recent move by the ECB may have eroded some of their credibility. Key Quotes “The ECB announced a 10 bps reduction in the deposit rate, and an extension of asset purchases (“QE”) from September 2016 to March 2017, that amounts to an approximately 30% increase in the QE. Additionally, the universe of bonds eligible for purchase has been extended to regional and local authority bonds and, less significantly, it was announced that proceeds from expiring bonds will be reinvested into the program.” “Ahead of the announcement, asset markets – forwards, but also other assets, such as equities – were positioned for more dovish policy. As Francesco Garzarelli suggests, markets may have interpreted prior communications by the ECB officials too optimistically, or ECB’s manoeuvring space may have been limited by elevated risks of spill-overs into other regions. Specifically, the idea of cross-Atlantic policy divergence may be something that both central banks – the Fed and the ECB – want markets to understand.” “Although we continue to think that the USD will strengthen against the EUR, we have revised upward our 12- month forecast to parity (from 0.95 previously) and 0.9 by the end of 2017 (from 0.80 previously). In the end, the ECB did deliver incremental easing – though short of expectations – and the option for further action if necessary remains in force.” For more information, read our latest forex news.