Here Comes the ECB
What Lagarde may try to engineer is a more-flexible APP program to fill in the gap, and maintain the current level of easing. Such strategy risks a multitude of communications errors, that could boost the euro and bund yields.
Today's meeting is particularly fraught because ECB communication is likely to emphasize better-than-anticipated economic performance and new inflation challenges.
A further problem is brewing around year end when the Fed tapers its purchases. That will push up global yields and tighten European financial conditions. It may put the ECB back in a position to ease further, something that could compound euro losses.For now though, the combination of inflation, economic growth and the reduction of the PEPP are all euro positives and $1.1940/50 should be back in play. Lagarde will be cognizant of that though and may try to balance it with layers of jawboning.
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