At the moment, the ECB’s policy is to carry on purchasing 30 billion euros ($36.38 billion) worth of government bonds until September, with the caveat that it might expand it again, if needed. However, as the minutes showed, the central bank is confident that “the recovery has now moved into an expansionary phase” with growth picking up and inflation forecasts indicating a return to pre-crisis levels in the short-term.
“Given the ECB’s track record of reacting only very gradually, we continue to see an end to QE in December and a first rate hike in June 2019, but the likelihood of an earlier normalization has logically increased,” Annenkov added.
Analysts at Barclays sounded more bullish Thursday arguing that the ECB could end QE in September and move with a first hike of 20 basis points to its benchmark rate in the last quarter of 2018.
A tightening monetary policy is usually seen as positive for a currency as it’s a sign of health in that region’s economy and reduces that amount of that currency in circulation. However, there are other factors that are set to fuel the euro higher against the greenback. Apart from a growing European economy, there are less political risks on the horizon compared to the start of last year. On Friday morning, the euro was once again higher against the dollar because of a breakthrough in German coalition talks. The euro was 0.8 percent up trading at $1.2121 at about 10:45 a.m. London time.
