While the ECB maintained all elements of its policy support last month, the recent news that it would soon “revisit” its forward guidance saw rate expectations rise and the euro strengthen. At its meeting on 25th January, we see the Bank dropping its pledge to buy more assets than scheduled if conditions worsen. And it should signal quite soon that net asset purchases will finish before the year is out. However, in time we expect clearer forward guidance on interest rates to imply a big delay between the end of QE and the first interest rate hike, causing the euro to lose some steam.
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