European Central Bank meeting will continue Euro tightening

At next Thursday’s meeting of the ECB’s Governing Council (20 July), we expect the Governors to continue their monetary tightening, but to do so in a ‘kind and gentle’ way. That is, they will try to soften the blow so as not to roil markets more than necessary.

Next Thursday, we expect ECB Chairman Mario Draghi to act hawkish while trying not to sound hawkish. We believe he will begin plans for a tapering of Quantitative Easing to start on 26 October. We expect QE to end in mid-2018 (depending on market reaction and economic data), and we look for an ECB rate increase by the end of 2018.

Central banks worldwide are shifting toward normalization of interest rates, and this is sending shockwaves through financial markets, pushing yields up 25bp across the yield curve. Draghi recently smashed conventional (dovish) wisdom with hawkish comments, sending the EUR on a bullish tear. He seems inspired by the Eurozone’s solid growth and not too fearful of inflation.

Peter Rosenstreich – Head of Market Strategy – Swissquote