The European Central Bank is set to meet tomorrow for its policy meeting. The meeting would be significant on some counts, noted DBS Bank in a research report. Markets might look for hints for the central bank to lower asset purchases in the fourth quarter, from the current quantum of EUR 30 billion per month.
The ECB is expected to halve QE in the fourth quarter, before ceasing the program in December. Inflation is lingering at the 2 percent target since May 2018, although driven mainly by cost-push prices, that is, higher transport/energy costs.
“While policy normalisation is still some time away, we believe that a combination of relatively stable growth (at 2 percent+ levels), modest pick-up in wage conditions and firm headline inflation are sufficient for the ECB to consider a gradual withdrawal from QE, stated DBS Bank.
However, developments in Italy are a wild card as the new government attempts to increase fiscal spending in its upcoming Budget to underpin its slowing economy, at the risk of breaching the bloc’s fiscal thresholds.
At 13:00 GMT the FxWirePro's Hourly Strength Index of Chinese Yuan was neutral at 11.2507, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -1.61193. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex