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ECB: Will they or won’t they? - Rabobank

FXStreet (Guatemala) - With the ECB coming up, we are reminded by analysts at Rabobank that the Jackson Hole symposium was dominated by Draghi’s speech.

Key Quotes:

“The ECB president inserted an eleventh hour acknowledgement of the fall in inflation expectations and combined that with a reiteration that the Governing Council will –within its mandate– use all available instruments needed to ensure price stability”.
“Will they or won’t they do quantitative easing? The ECB has clearly been fighting tooth and nail to avoid the “classic” form of QE, i.e. purchasing government bonds with printed money”.

“But non-sterilization of the SMP could be interpreted as retro-active QE, while planned forays into ABS purchases could certainly be seen as such. So we are there already all but in name. The threat of actual deflation would then be key as to whether the ECB ultimately decides to expand QE to government bonds”.

“Disinflationary pressures and the broader outlook in the eurozone are often linked to the EUR/USD exchange rate. Certainly during 2014H1 significant capital flows into the eurozone’s peripheral sovereign bond markets, triggered by broader emerging market wobbles, supported EUR/USD and generated disinflationary pressure”.

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