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ECB signals likely shift to sovereign debt QE early in 2015 – BTMU

FXStreet (Barcelona) - Lee Hardman, Currency Analyst at Bank of Tokyo-Mitsubishi UFJ, observes euro continuing to hold up well in the near term despite signals that ECB is moving closer towards implementing a sovereign debt QE.

Key Quotes

“The euro continues to remain relatively stable in the near-term having reversed most of the sharp sell-off following ECB President Draghi’s more dovish speech last Friday. The euro is continuing to hold up well in the near-term despite further signals from the ECB that it is moving closer to following the other major central banks by implementing sovereign debt QE.”

“At a Financial Times banking summit yesterday, ECB vice-president Constancio stated that “we expect that the adopted measures will lead within the time of the programme, the balance sheet to go back to the size it had in early 2012. We have, of course, to closely monitor if the pace of its evolution is in line with that expectation. In particular, during the first quarter of next year we will be able to gauge better if that is the case. If not, we will have to consider buying other assets including sovereign bonds in the secondary market, the bulkier and more liquid market of securities available”.”

“He also gave the first official signal yet that the ECB could purchase sovereign debt based on the capital key as widely assumed. The comments signal that it is increasingly likely that the ECB will begin sovereign debt QE in Q1 2015. The upcoming meeting in December may prove too early.”

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