Oct 05

ECB taper on the table

unnamedThe ECB is thinking about tapering bond purchases, according to a Bloomberg report. The question is: when?
 The euro jumped nearly a cent on the initial headlines on the impression that the tapering could start in 10 million euro increments as soon as December. Later, the gains were halved on the idea that the ECB is more talking about theoretically tapering when the time is right.
 The story itself seems to swing both ways. They highlight that the ECB is running out of assets to buy (true) and wants to put pressure on governments to reform (true) but don’t explicitly say when the ECB might consider tapering.
Naturally, the ECB denied it but even the denial only went half-way. They said the ECB didn’t discuss tapering at the Governing Council meeting. But the story said it was something discussed later. The market remains skeptical, but tapering now (and maintaining the size of the balance sheet) would fit in with the more-optimistic tone from the ECB.
Aside from the ECB story, markets were volatile on Tuesday and the US dollar caught a strong bid against the yen and commodity currencies despite another rally in oil prices. Bonds and stocks sold off at the same time.
The dollar gains came in spite of the IMF lowering its US growth forecast this year to 1.6% from 2.2%. USD has shown time and again that it’s tough to hold down. USD/JPY broke above the downtrend since May and is approaching the 100-day moving average at 103.76.