Global institutions are required to regulate integrated markets that raise the risk of financial contagion, spillovers and financial instability, European Central Bank President Mario Draghi said on Wednesday.
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The ECB is working with around 20 different action proposals, mostly relating to asset purchases, and its committees are expected to narrow down the options in the weeks leading to the December rate meeting after circulating them among the euro areas 19 central banks, a source familiar with the situation said.
In currency markets, the euro slid to its lowest level against the greenback since April as investors eyed a speech by Draghi in London, during which he may allude to further easing. Effectively, the cross-currency basis swap is a measure of demand for dollars or of the surfeit of euros in the system. The story also indicated that an expansion of the QE programme is also under consideration but that this option is seen as more contentious, implying that a depo rate cut could be the preferred policy tool.
After a “pristine” jobs report last Friday, we can expect the USA dollar to break out and the euro to reach parity and beyond by the end of this year, according to Goldman Sachs.
Euro money market traders polled by Reuters this week shared that view for December. “They’ll hike in December but the tone would be more dovish….” In short, both central banks look to be pursuing domestic objectives, which is of course what monetary policy should look like with freely floating exchange rates. And if it decides to extend the planned expiry date from September 2016, it’s likely to be June 2017. The euro’s rebound brought it down about 0.2 percent on Monday, to 98.995.
While inflation is expected to accelerate, it will likely average just 1.6 percent even as far out as 2017 – the ECB’s forecast horizon.
Early signals from business surveys so far have painted a tepid outlook for the current quarter and also suggest that firms have resumed price-cutting to drum up new business. Often their policies are counterproductive, especially when too many banks are easing at the same time and trying to reduce the value of their currencies, he says. A few think that Draghi will not push against the rate cuts, but the issue is that if the deposit rate is cut then that is going to impact the euro the most.
The USA nonfarm payroll report on Friday showed a rise of 271,000 last month, far exceeding the 180,000 new jobs for October economists polled by Reuters had predicted.
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Betting in the futures market put chances that the US Federal Reserve will next month raise its key lending rate from 0% at stronger than two-in-three.
