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6 Mar 2014
Flash: ECB inaction could boost EUR/USD - Societe Generale
FXStreet (Barcelona) - Kit Juckes, Global Head of Currency Strategy at Societe Generale, suggests the ECB could reignite the risk appetite.
Key Quotes
"If the ECB does anything today it is likely to end sterilisation of SMP purchases. That doesn't strike me as a game-changer."
"Indeed, if the drivers of EUR/USD are the 2-year interest rate differential and risk aversion as shown by peripheral bond spreads, it is hard to imagine a policy move which drives down Euro rates much (2yr swaps at 0.45% today), without also pushing more money into BTPs and Bonos. I can't really see what the ECB can do from here to boost credit demand and therefore money supply either."
"Slowing the de-leveraging of the financial system would help more than cutting rates and the even the effects of ECB QE would be diluted because Fed QE has already sent global asset prices up, volatility and credit spreads down. EUR/USD is near the top of its range, and will head lower once US rates start to move up, but the ECB may boost risk appetite, hardly a difficult task during the current hiatus in the Ukrainian crisis. Sell EUR/NOK."
Key Quotes
"If the ECB does anything today it is likely to end sterilisation of SMP purchases. That doesn't strike me as a game-changer."
"Indeed, if the drivers of EUR/USD are the 2-year interest rate differential and risk aversion as shown by peripheral bond spreads, it is hard to imagine a policy move which drives down Euro rates much (2yr swaps at 0.45% today), without also pushing more money into BTPs and Bonos. I can't really see what the ECB can do from here to boost credit demand and therefore money supply either."
"Slowing the de-leveraging of the financial system would help more than cutting rates and the even the effects of ECB QE would be diluted because Fed QE has already sent global asset prices up, volatility and credit spreads down. EUR/USD is near the top of its range, and will head lower once US rates start to move up, but the ECB may boost risk appetite, hardly a difficult task during the current hiatus in the Ukrainian crisis. Sell EUR/NOK."