What to wait from ECB, and how will affect the markets?
After today's Hawkish stance of BoC, now eyes will be on tomorrow BoJ and ECB meetings.
From the European central bank we are not expecting any changes, none in the Interest rate and not in its earlier announcement about tapering.
At its September meeting, the European Central Bank (ECB) mentioned that asset purchases pace in Q4 would be conducted at a slower pace compared to Q2 and Q3 purchases. While inflation in Eurozone surpassed 2% and hit the highest level since 2014, probably they will just closely watch this measure to project the price rises and will mention in the announcement that they are worried about the current inflation situation. However, it is not enough to increase the rates and decrease the asset purchases amount. For tomorrow, we expect the ECB to continue the asset purchases and remain committed to accommodative monetary policy because the Eurozone economy struggling with the latest shortages ad slower growth.
Since one of the reasons for current inflation increasing is the higher energy prices, so with the disappearance of this factor we can see the lower inflation, which must probably be in the second quarter of 2022, after cold winter.
In the end, given our expectation to hold the current policies with no changes, the ECB's Pandemic Emergency Purchase Program (PEPP) must be completed on schedule in Q2-2022. But it does not mean the ending the ECB supports, most probably we will see another purchase plan, to be gradually tapered and accommodative monetary policy to be slowly lifted.
This expected policy is not in a favor of the Euro and will put that under pressure against its crosses.
