All trading involves risk. Losses can exceed deposits.
Over 40 years’ heritage
Over 185,000 clients worldwide
Over 15,000 markets

ECB rate announcement: watch EUR/USD

IG chief market analyst Chris Beauchamp and Jeremy Naylor discuss this week’s ECB meeting, a potential tapering of its QE programme and the possible effects on EUR/USD.

All trading involves risk. Losses can exceed deposits.

There is mounting speculation that the European Central Bank (ECB) will announce more tapering of its quantitative easing (QE) programme on Thursday 26 October 2017. Analysts expect the bank’s Governing Council, chaired by ECB President Mario Draghi, to pursue a ‘lower for longer’ policy. This phrase, originally used to describe how interest rates will remain low in the post-crisis period, is now being used to describe how the bank may reduce the amount of monthly bond purchases but extend the programme.

A change to QE is expected to take the asset purchase programme from roughly €60 billion a month to somewhere in the region of €20-30 billion, and extend the programme into late 2018 or early 2019. This follows the changes the bank made in April, when it lowered asset purchases by €20 billion a month and extended the programme to the end of 2017.

At first glance, a cut to QE seems somewhat counterintuitive. Inflation was 1.5% in September, someway off the bank’s target rate of just under 2%. However, the bank’s hands are tied. It is only allowed to purchase up to one-third of each country’s debt, and it will soon hit this figure in Germany, Portugal and the Netherlands unless QE is tapered.

As inflation is still below target, any new taper would be designed to keep the inflation-boosting effects of QE going as long as possible – and reduce the potential shock impact of any policy change on the equity and foreign exchange (FX) markets. However, any change of policy is still expected to affect these markets, so we’re likely to see price movement in major currency pairs such as EUR/USD over the coming days.

The Governing Council’s interest rate and QE decisions will be published at 12.45pm (UK time) on Thursday 26 October 2017. A press conference is scheduled for 1.30pm (UK time) the same day, in which Draghi will give a speech and answer questions from journalists.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by analysts

Education

  • Shares explained

    Without shares there could be no stock markets, which are vital to every national economy. Find out how the shares trade enables companies to expand and develop, while providing sources of income to private investors and larger funds.

  • Pricing

    In this section we offer an introduction to financial spread betting and how it works, featuring examples and reasons to spread bet. We also discuss the related pricing and funding requirements.

  • Support and resistance

    Find out how analysts use charts to study investor behaviour and understand patterns in the market. Learn to use the different charts available to you and identify price patterns as they form.