Germany Piles Pressure on European Central Bank to Tighten Monetary Policy

Germany Piles Pressure on European Central Bank to Tighten Monetary Policy

Germany Piles Pressure on European Central Bank to Tighten Monetary Policy

It remains to be seen whether ECB President Mario Draghi will signal measures towards winding down the bank's quantitative easing program at some point this autumn. While investors are expecting some form of QE tapering from the ECB, it is unlikely that the central bank will announce its tapering plans this week.

"Any attempt to jawbone the currency lower by the ECB will be limited in its impact as the broader market expects policymakers to stick to their plan of gradually unwinding its policy stimulus", said Peter Rosenstreich, head of market strategy at Swissquote Bank in Switzerland.

Figures released earlier on Thursday confirmed that the eurozone's economy grew by 0.6% in the three months to June, following growth of 0.5% in the first quarter of the year.

The main focus of the day is the euro, which stood nearly flat at $1.1925 ahead of the ECB's policy meeting, maintaining its uptrend since the start of this year. The most bullish outcome for the euro would be if Draghi & Co. were to suddenly surprise the market with an announcement regarding QE tapering whilst simultaneously down playing any concerns over the strength of the euro. While Brainard, a voting member of the Fed's monetary policy committee, has already make clear her view of a slower path of hikes, investors saw her comments as another opportunity to sell the already fragile greenback. The euro was flat at $1.1924, over a cent away from last week's high of $1.2070.

A stellar rally for the single currency is a sharp contrast to the mood at the start of the year, when fears that the populist Marine Le Pen might capture the French presidency had some forecasting the euro would fall to parity against the dollar.

In an attempt to stimulate demand in the single currency area, the European Central Bank began buying assets in March 2015 at the rate of €60bn per month, paying for it with newly created electronic money.

Deutsche Bank chief executive John Cryan said on Wednesday (6 September) that worries over stock, bond and property price bubbles are surfacing across the eurozone on account of "cheap money" pumped in by the European Central Bank.

"Ultimately, we think the BOC will want to see how the housing market and NAFTA talks evolve", and will want to assess reports on trade, jobs, inflation and its Business Outlook Survey before deciding on a rate hike at the October 25 meeting, he said. Although the Eurozone GDP growth was lower in 2014 compared to today, the impact of the exchange rate on the inflation is an empirical fact and can not be completely ruled out. BMW jumped 1.9 percent, Daimler climbed 1.7 percent and Volkswagen added 1 percent. We think the tightening in monetary conditions after the Euro appreciation makes the Governing Council sensitive to market perceptions of policy differential.It is actually roughly when the European Central Bank got ready to ever-so-slightly toughen up its communication at Sintra that the Fed's signals became harder to read.

So far, Draghi has not expressed public concern and analysts are speculating he may now use the post-decision news conference to address the issue. While the revision seems widely expected, its size introduces symmetric risks for the Euro.

Elsewhere, the Swedish crown was lower against the euro, with up 0.22% to 9.5310 after the Riksbank has left interest rates unchanged at a record low of on Thursday.

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