We’ve had enough central bank surprises over the past week, thanks to the SNB last week and also by the Bank of Canada yesterday, so after supposed leaks regarding the ECB’s planned QE leaks (along with others earlier in the week), there appears to be little left to the imagination. The euro’s reaction to talk of a planned EUR 50bln per month of purchases (for up to 2 years) says it all, with an initial decline, followed by recovery, with the euro falling once again into the European close. Bonds yields were higher, thinking that a higher than expected program would be successful in re-stocking the economy and inflation. All this shows that there are many variables to the announcement from the ECB today and that any initial reaction may struggle to be sustained, especially if further technical details are announced during the press conference at 13:30 GMT, as is likely to be the case. If the EUR 50 bln a month for 2 years is confirmed, then some further euro downside is likely, but sustaining this could be difficult if we see national central banks shouldering the credit risk for such purchases.
Elsewhere, the Loonie was pushed lower on the back of the surprise cut in rates from 1.00% to 0.75% by the Bank of Canada. The impact of the weaker oil price on the economy was mostly to blame, both via lower oil output and also investment. As such, it does not pay to read too much into the move in terms of implications for the wider world. That said, we did see the two dissenters on the Bank of England committee fall into line in yesterday’s to vote with the majority for steady rates, which initially hit sterling, with some recovery managed thereafter on the back of the generally weaker dollar tone.