Will ECB taper its QE or not? Let’s figure it out!
Bloomberg must be tired of the long-lasting absence of front-page splashes and decided to turn everybody’s attention to itself. Yesterday it came up with an extraordinary report citing unnamed ECB officials who said that the ECB is planning to taper its QE asset-buying program. This rattled Tuesday’s markets, sent yields to their highs and resulted in the sheer fall of gold prices. The euro experienced an upsurge versus dollar once the news came out.
We couldn’t confirm the veracity of this report. From M. Draghi’s words that we heard at the last press conference, we can conclude that the ECB would rather extend its QE program when it is expired than taper it. No wonder why the ECB is going to do so; the economic recovery of Eurozone countries is hardly looming on the horizon; there are clear signs of subdued inflation. In one word, it seems that there is no rationale for such fundamental changes of monetary policy. That’s why many investors expect the monetary stimulus to be extended and even enlarged and that’s why the Bloomberg’s report made a stir in financial markets. Nobody could even think of this turn of event.
You might ask then why would anybody believe this report. Well, there is a reason to wind down the QE program. It is considered to be a threat to banks’ margins. The most basic measure of a lender’s profitability is the gap between what it charges borrowers and the interest it has to pay depositors. But only few depositors are now receiving any interests from their saving accounts, and it’s difficult for banks to attract new clients with low or negative rates. Maybe, in the midst of the Deutsche Bank scandal and rising doubts about its feasibility to deal with it on its own, the ECB decided to somehow facilitate the work of banks by tapering its QE program. It could be so. But now we cannot be a hundred-percent sure, that it will actually happen, as we didn’t hear any official announcements from the “named” ECB officials.
As a result, it’s yet to be seen whether the single currency is able to sustain bullish momentum. EUR/USD met resistance at 1.1230 (near-term resistance line) ahead of last week’s high near 1.1280.