EUR: ECB to trigger further currency weakness.
In line with market expectations, we expect the ECB to commit to sovereign QE this week. More importantly, we do not rule out that a more aggressive announcement than expected could be considered in order to have a meaningful impact on inflation expectations. This is especially true as the risk of deflation has increased considerably of late. As such, it comes as no surprise that central bankers – including Governing Council member Nowotny – have stressed this week that they should decide on QE sooner rather than later.
All of the above stands in contrast to the US. The Fed regards moderating price developments as transitory, and the central bank will stay focused on further improving labour market conditions to steer interest-rate expectations.
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