As expected, Mario Draghi managed to deliver yet another dovish “end of QE”, because while in less than three weeks the European Central Bank will no longer engage in government bond QE (although it will reinvest maturities for an “unspecified” period of time), the reason the Euro tumbled is that, as previewed overnight by Bloomberg, Draghi not only uttered the magic, for algos, words that the “balance of risks is moving to the downside”, but also cut both the ECB’s GDP and inflation forecasts.
This is the sentence that pushed the Euro lower at first:
“Risks surrounding the euro area growth outlook can still be assessed as broadly balanced. However, the balance of risks [to the growth outlook] is moving to the downside owing to the persistence of uncertainties related to geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial market volatility”
… followed promptly by the cut to both 2018 and 2019 GDP and HICP inflation:
GDP forecasts:
- 2018 at 1.9% (prev. 2.0%),
- 2019 at 1.7% (Prev. 1.8%),
- 2020 at 1.7% (Prev 1.7%),
- 2021 at 1.5%
HICP forecasts:
- 2018 at 1.8% (prev. 1.7%),
- 2019 at 1.6% (Prev. 1.7%),
- 2020 at 1.7% (Prev 1.7%),
- 2021 at 1.8%
And visually:
On the other hand, the ECB’s inflation forecast has been roughly in range for the past year.
In kneejerk reaction, the EURUSD tumbled 40 pips and was trading at day lows.
via RSS https://ift.tt/2SMq2GD Tyler Durden