8 Jan 2015
Case for more aggressive ECB easing continues to build – BTMU
FXStreet (Barcelona) - Lee Hardman, Currency Analyst at Bank of Tokyo-Mitsubishi UFJ, shares that euro remains under downward pressure in the near-term as investor expectations continue to build that the ECB will soon announce more aggressive monetary easing.
Key Quotes
“The case for further ECB easing was strengthened yesterday by the release of the latest inflation report from the euro-zone which revealed that the annual headline rate declined by more than expected to -0.2% in December. Weakness was mainly driven by energy which declined by an annual rate of -6.3%.”
“It was somewhat reassuring that weakness in energy prices was also not accompanied by further evidence of more intense disinflationary pressure in the core rate. The annual rate of core inflation ticked higher by 0.1 percentage point to 0.8%.”
“The ECB is concerned that lower energy prices could have a greater negative spill-over impact on core inflation given the current very low rate of inflation. From that perspective the ECB will likely be more concerned by the ongoing decline in inflation expectations. The five-year/five year forward swaps rate measure of inflation expectations recently highlighted by ECB President Draghi is continuing to fall further below their inflation target as it is moving closer towards 1.5% early this year.”
“We remain of the view that the ECB will soon announce a sovereign QE programme which is likely to remain a weight on the euro in the year ahead.”
“Uncertainty surrounding sovereign QE is now primarily related to the timing of the announcement and how the programme will be structured rather than whether it will happen.”
Key Quotes
“The case for further ECB easing was strengthened yesterday by the release of the latest inflation report from the euro-zone which revealed that the annual headline rate declined by more than expected to -0.2% in December. Weakness was mainly driven by energy which declined by an annual rate of -6.3%.”
“It was somewhat reassuring that weakness in energy prices was also not accompanied by further evidence of more intense disinflationary pressure in the core rate. The annual rate of core inflation ticked higher by 0.1 percentage point to 0.8%.”
“The ECB is concerned that lower energy prices could have a greater negative spill-over impact on core inflation given the current very low rate of inflation. From that perspective the ECB will likely be more concerned by the ongoing decline in inflation expectations. The five-year/five year forward swaps rate measure of inflation expectations recently highlighted by ECB President Draghi is continuing to fall further below their inflation target as it is moving closer towards 1.5% early this year.”
“We remain of the view that the ECB will soon announce a sovereign QE programme which is likely to remain a weight on the euro in the year ahead.”
“Uncertainty surrounding sovereign QE is now primarily related to the timing of the announcement and how the programme will be structured rather than whether it will happen.”