The European Central Bank meet today in Frankfurt for their latest Interest Rate decision and Monetary Policy Statement. Investors are expecting an important day for the Euro with the central bank of the Eurozone predicted to wind down their extensive QE, Quantitative Easing program. This may lead to Euro strength although many suspect the ECB might struggle to be as bold as the market has previously been led to believe.
A number of factors at home and abroad are weighing on the ECB and there are no easy decisions on such a crucial topic. QE was launched back in 2015 to revitalise a stagnant European economy, languishing following the debt crisis era from 2010-2014. The economic boost and benefits were seen with increased growth and with lower Unemployment, hence the trajectory by the ECB since 2017 to aim for winding down their program today.
2018 has however provided Donald Trump’s Trade Wars and fresh European political concerns which, in the last few months have seen rising concerns over economic growth and the political direction within the Eurozone. Germany has recently cut its economic growth forecast for 2018 to 1.5-1.6%, from 1.8% predicted earlier in the year. Italian GDP came out at -0.1% on the last reading which means it could be headed for a recession in the New Year.
The Italian budget standoff does seem to be making progress with Italy agreeing a 2% budget deficit but this is another example of potential issues and problems the ECB has to contend with in today’s decision and in 2019.
The ECB decision is at 12.45 GMT with the Monetary Policy Statement at 13.30 GMT, this is likely to be the more interesting release as we will understand Mario Draghi, President of the ECB, and his team’s decision.
The Euro could be in for a very choppy session as the market tries to bridge the gap between what the ECB is telling us and what the economic data appears to be pointing to. Is the recent lower economic growth temporary, or are we looking at a Eurozone headed back towards stagnation, which would trigger wide concerns about debt amongst troubled members like Italy.
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