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ECB Cuts Bond Purchases, Euro Falls

Posted by Joseph Trevisani on Oct 26, 2017 2:25:03 PM

The euro broke a two-day rally and fell to its lowest level against the dollar in three months after the European Central Bank announced a reduction in its bond buying pogram to 30 billion euros a month for nine months beginning in January.  That will be half the central bank's current total of 60 billion euros,  itself a decrease from the original 80 billion euros plan.   The bank also said it will continue to reinvest the funds from maturing securities. 

The euro had been trading at 1.1815 just before the ECB decision. During President Mario Draghi's press conference the euro moved sharply lower, pausing briefly around 1.1750 and then 1.1700 euro before breaking through just after the European close and then trading as low as 1.1654.

Yields on European sovereign notes  generally moved lower after the news with money markets now pushing the chance of a rate hike into the second quarter of 2019.  

Although the purchase cut was widely expected the continuing reinvestment will cushion the impact of the ECB's limitaton on its bond portofolio, support bond prices and  keep rates from moving higher. 

 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Chart: WWM Alpha Trader

eur oct 26.png

 

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