❗ The European Central Bank has reacted aggressively to rising bond yields but talk can suffice only for a while. What else can the ECB do?
The ECB has been partly successful in talking down bond yields and managed to send DE30 to all time highs and EURUSD clearly lower. But markets have heard the talk and want to see some action. What the ECB could do?
Employ Yield Curve Control (or YCC) – this would be the most decisive action that could send DE30 higher and euro lower. YCC is a policy where the Bank is buying unlimited amounts of bond to provide a cap on bond yields (say -0.2% for German 10 year bond). It’s tempting but ECB representatives have suggested it could be hard to employ (not least because there bonds of many governments) and it looks like a very unlikely scenario.
Cut deposit rate – already at -0.5% it is one of the lowest in the World. ECB suggested it could do it but it looks unlikely as it hurts the banking sector. Rates are especially important for currencies so a cut could send EURUSD sharply lower.
More QE – the ECB could always “print” more but the current envelope has plenty of space so there’s no practical point in increasing it now. What the ECB can do is to suggest faster pace of purchases and a promise to increase the envelope as much as needed in the future and it looks like this is a scenario that markets are looking towards.
DE30 keeps soaring after breaking previous all-time highs. Will the ECB help maintain this sentiment? Source: xStation
Please be aware that information and research based on historical data or performance does not guarantee future performance or results. Past performance is not necessarily indicative of future results, and any person acting on this information does so entirely at their own risk.
This content has been created by X-Trade Brokers Dom Maklerski S.A. This service is provided by X-Trade Brokers Dom Maklerski S.A. (X-Trade Brokers Brokerage House joint-stock company), with its registered office in Warsaw, at Ogrodowa 58, 00-876 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. X-Trade Brokers Dom Maklerski S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.