📆 ECB to announce policy decision at 12:45 pm BST
Monetary policy decision announcement from the European Central Bank at 12:45 pm BST is a key event of the day. President Lagarde will hold a press conference 45 minutes later at 1:30 pm BST. Interest rates will be left unchanged and no one seems to question it. However, this time attention will be on the Pandemic Emergency Purchase Programme (PEPP). This is an emergency programme that was launched during the pandemic and is currently running at a pace of €80 billion per month. However, this programme runs simultaneously to a "normal" Asset Purchase Programme (APP) that is running at the pace of €20 billion per month.
ECB prepares tapering announcement?
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Open account Try demo Download mobile app Download mobile appInvestors will look for hints whether ECB is ready to taper. Some expect that the European Central Bank may announce scaling down of PEPP to €60 billion per month in the final quarter of 2021, down from the current €80 billion per month. It would be a very hawkish message as it would hint that the economy is no longer needing as much support. However, even if this is so, the ECB President Lagarde will likely try to assure markets that it is not the end of monetary stimulus and that the ECB keeps all options on the table. A less hawkish but still hawkish move would be to leave the pace of purchases unchanged but vow not to extend the programme beyond the current deadline of March 2022.
While inflation in the euro area is nowhere near as high as in the United States, a major acceleration occurred in Europe as well. The most recent CPI reading (for August) showed an acceleration from 2.2% YoY to 3.0% YoY. ECB is no longer targeting inflation "near or slightly below 2%" and has instead adopted a symmetric 2% target with some leeway for short-term deviations. Nevertheless, recent pick-up in price growth to the highest levels since 2011 is likely to raise questions in case ECB decides to stay on hold today.
Technical situation
With markets taking into account the possibility of a major move from the ECB today, the decision may actually have an impact on the markets, especially DE30 and euro. When it comes to the German index, DE30 has dropped below the range of recent consolidation, threatening to deliver a large decline that could lead to trend reversal. However, note that previous such downside break from the June-July trading range turned out to be a false breakout and index rallied to fresh all-time high later on. The ongoing pullback has been halted today at 50% retracement of the upward impulse started in mid-July. Will today's ECB decision be a trigger for a similar recovery move as in late-2021? We shall see in the afternoon but equities may feel the pain if ECB decides to go through with lowering asset purchases.
Source: xStation5
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