EUR

Today the ECB will meet for their latest monetary policy meeting. Tapering is once again a hot topic as investors eagerly await decisions on interest rates and the Pandemic Emergency Purchase Program (PEPP).

Since March 2020 the ECB have been purchasing bonds, through PEPP, to provide much needed support to the economy. Taking this away will begin the process of monetary policy tightening, a process that would likely see the EURO strengthen.

If the ECB do decide to taper, there are some factors to consider which will determine how much euro strength we can expect. A key factor will be the rate at which they taper. The general rule of thumb is, the faster tapering occurs, the more upside the currency could experience. Along the same lines, the rate at which tapering occurs when compared to other countries will also be something to consider. If the ECB decide to taper quicker that the UK, we will see the Euro strengthen considerably against the pound.

The argument however for tapering is still debated. August inflation rose to 3% YoY in the EU, well above the 2% target. This rise in inflation was also seen in the UK and US whose central banks deemed the spike as transitory. The ECB have already said they are happy for inflation to run above the 2% target and expect, much like in the UK and US, these readings to fall over the coming months.

This being said, we don’t expect any dramatic announcements today and the meeting could be quite disappointing. Not enough has happened for the ECB to announce a significant change in policy or changes to interest rates. As with all central bank meetings, changes to tone in the policy statement will be key to any market movement.

Key announcements

12:45 – ECB interest rate decision
12:45 – ECB monetary policy statement
13.30 – ECB press conference