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EUR: ECB easing options in focus – MUFG

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Mar 3, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    Lee Hardman, Currency Analyst at MUFG, suggests that the gradual rebuilding of Fed rate hike expectations and likelihood of more aggressive monetary easing from the ECB at next week’s policy meeting is generating fresh impetus for the policy divergence trade which is helping to drive EUR/USD back towards the bottom of its rough trading range over the last year between the 1.0500 and 1.1500 levels.

    Key Quotes

    “Bloomberg has released a report stating that ECB officials are privately deliberating over how to enhance their monetary policy stance without maiming its transmission. The report states that Committees studying how to mitigate the impact on banks from negative rates have prepared measures that range from variations on a tiered deposit rate to techniques for countering the impact of stimulus on excess liquidity according to people familiar with the discussions. A simple measure to implement would a two tier system similar to that used by the SNB which would apply negative rates only on balances at the ECB beyond a certain threshold.

    By attempting to limit the negative impact on banks profitability from negative rates, it would increase scope for the ECB to lower rates deeper into negative territory. However, as discussions from last week’s G20 meeting have highlighted there is concern amongst global policymakers that such actions constitute beggar thy neighbour currency policy and could face opposition.”
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