17 Oct 2014
Central bank policymakers comments prop up the euro - BTMU
FXStreet (Łódź) - Derek Halpenny, European Head of Currency Strategy at the Bank of Tokyo Mitsubishi UFJ states that ECB's Nowotny and Fed's Bullard's comments on Thursday provided support for the euro.
Key Quotes
"Just prior to Bullard’s comment, we had ECB Council Member Nowotny play down the ABS QE program’s size saying that expectations had become exaggerated. He added that 'quality rather than quantity' was more important and was the focus of the ECB in implementing the program."
"I’m not sure the markets will necessarily agree with that and it appears possible that the markets may well be under-whelmed by the ECB’s QE program. The ECB yesterday signed off on the legal framework for the Covered Bond program which is expected to start at some point through the remainder of October."
"The Bullard/Nowotny comments have helped throw some uncertainty on the obvious relative monetary policy play and that has helped stabilise the euro. However, for two reasons, we do not expect that support to prove lasting."
"Firstly, a tepid ECB response in current economic and market conditions in the euro-zone is hardly a positive for the euro and a perceived inability of the ECB to respond to worsening developments would be a clear negative for sentiment. Secondly, monetary policy expectations will be ultimately driven by relative growth developments and on that front, the US will remain in a far better position that the euro-zone for some time to come. If the EUR/USD rate does manage to squeeze toward the 1.3000 level, it would then likely be met with heavy selling."
Key Quotes
"Just prior to Bullard’s comment, we had ECB Council Member Nowotny play down the ABS QE program’s size saying that expectations had become exaggerated. He added that 'quality rather than quantity' was more important and was the focus of the ECB in implementing the program."
"I’m not sure the markets will necessarily agree with that and it appears possible that the markets may well be under-whelmed by the ECB’s QE program. The ECB yesterday signed off on the legal framework for the Covered Bond program which is expected to start at some point through the remainder of October."
"The Bullard/Nowotny comments have helped throw some uncertainty on the obvious relative monetary policy play and that has helped stabilise the euro. However, for two reasons, we do not expect that support to prove lasting."
"Firstly, a tepid ECB response in current economic and market conditions in the euro-zone is hardly a positive for the euro and a perceived inability of the ECB to respond to worsening developments would be a clear negative for sentiment. Secondly, monetary policy expectations will be ultimately driven by relative growth developments and on that front, the US will remain in a far better position that the euro-zone for some time to come. If the EUR/USD rate does manage to squeeze toward the 1.3000 level, it would then likely be met with heavy selling."