Germany Tells the ECB It's Time to Start Raising Interest Rates

Thursday, 07 Sep, 2017

UBS's official expectations are for a cut to €40bn month purchases at the 26 October meeting, decision and then a further taper to €20bn in March 2018, "before the eventual culmination of QE in Jun-Sep, equating to an additional aggregate purchase of Euro 180-210bn", says Siegenthaler.

The prices of goods leaving the eurozone's factory gates haven't risen since January, indicating continued weakness in inflationary pressures, despite a firming economic recovery.

The current QE program is due to end in September. "As far as non-conventional monetary policy measures are concerned, we confirm that our net asset purchases, at the current monthly rate of Euro 60 billion, should be realized until the end of December 2017 or beyond if necessary".

The ECB is expected to steer clear of any new guidance on its asset purchase programme, as Draghi is anticipated to avoid any comment that boosts the euro and thereby threatens a nascent recovery in consumer inflation.

Euro US Dollar trade briefly hit a multi-year-high of 1.2059 last week but ultimately dropped and ended the week at around 1.1860.

In fact, it seems that ECB President Mario Draghi himself triggered the financial storm on June 27 in Sintra, Portugal, during his introductory speech at the seminar on central banking-in front of definitely very reactive listeners. Yet, inflation remains stubbornly low.

As a result of this and persistent Brexit concerns, most analysts predict the Pound Euro exchange rate will continue to weaken in the long-term.

If Congress passes the package, which also includes relief funding for Hurricane Harvey, it would prevent a default on the federal debt. Monetary stimulus can drive down interest returns, reducing demand for a currency since investments denominated in that currency earn less.

The ECB is now expected to wait until October to announce the future of its asset purchases program.

In early United Kingdom company news, Imperial Brands confirmed it will sell a minority stake in Spanish distributor Compania De Distribucion Integral Logista Holdings SAU - known as Logista - with plans to use the proceeds to reduce its net debt and undertake a share buy-back.

"If we had a move up to $1.25 in a short period of time - maybe six months or so - then that would be hard for the European Central Bank". By Friday, September 2, the euro closed at 1.1861, marking a 6.5% rally in under three months.

The Governing Council, led by ECB President Mario Draghi, is widely expected to keep all three of its interest rates unchanged for a twelfth consecutive policy session and retain the Euro 60 billion monthly asset purchases that are set to run until the end of the year.

The ECB may also be questioned about a growing scarcity of eligible bonds for the bond-buying scheme, which might encourage it to wind down stimulus sooner rather than later.

With all this in play, it is not surprising that the European Central Bank is keen to retain as much policy flexibility as possible. Traders should be prepared for two-sided volatility on Thursday.

For sure, the European Central Bank and Mario Draghi have to find answers to all those questions next Thursday or rather after a few weeks in October at the latest.

The pan-European STOXX 600 .STOXX index fell 0.1 percent, giving up the slight gains seen earlier in the session, while euro zone blue chips .STOXX50E declined 0.3 percent.