ECB remains cautious on QE exit – UOB

Researchers at UOB Group assessed yesterday’s release of the ECB minutes of the January meeting.

Key Quotes

“Specific on the European Central Bank (ECB), the minutes for its 25 Jan meeting reiterated the ECB’s existing cautious approach to communicating an exit from QE. The minutes noted that “changes in communication were generally seen to be premature at this juncture” and “monetary policy would continue to develop with a view to avoid abrupt or disorderly adjustments at a later stage”.

The minutes added that “some members expressed a preference for dropping the easing bias. However, it was concluded that such an adjustment was premature and not yet justified by the stronger confidence”.

“The EUR/USD pair had initially staged a strong rally over the past few months, in part over the broad USD weakness and also in part due to growing expectations that the ECB will eventually announce a formal end to QE. We expect the ECB to do so at its upcoming March meeting and flag a drop of its monthly asset purchases to zero by September”.

“On the EUR, the ECB minutes took the opportunity to add that “there was broad agreement among members that the recent volatility in the exchange rate of the Euro was a source of uncertainty which required monitoring”. This is in line with on-going verbal intervention from various ECB officials to limit the strong pace of Euro strength in recent months”.