FXStreet (Barcelona) - Derek Halpenny, European Head of Currency Strategy at the Bank of Tokyo Mitsubishi UFJ, sees the EUR lower and a QE program in the EU less likely.
"Draghi encourages euro selling While acknowledging yesterday the increased geopolitical risks related to Russia, ECB President Draghi kept the broad assessments of the economy and inflation unchanged. The key purpose of yesterday it would seem was twofold – firstly to push back on political pressure to do more by calling for labour market reform but secondly to emphasise the fact that the ever-growing divergence in policy between the euro-zone and the US would last for some time."
"That implied that the “fundamentals for a weaker exchange rate are much better than they were two or three months ago”. He also noted some reversal of short-term capital inflows the euro-zone."
"President Draghi did also keep the QE expectation alive by stating an external consultant would be hired to design the ABS QE program. However, there was nothing notably new on this relative to the announcement in June and we doubt there’ll be much reaction to ABS QE given the assumption that the size of any plan is likely to be relatively small."
"QE in the sovereign debt markets would be a totally different story but we do not envisage the ECB embarking on such a program. The comments on the exchange rate certainly reinforce our belief that the ECB sees the exchange rate as a key variable in influencing short-term risks to price stability and in that sense may continue to subtly talk it lower."