EUR/USD: Further gains to be dampened in case ECB maintains asset purchases – MUFG

The market’s focus shifts today to the European Central Bank's latest policy update. Economists at MUFG Bank believe the ECB would maintain PEPP purchases at a pace “significantly higher” than earlier this year. Therefore, EUR/USD should see declining buying interest.

See – ECB Preview: Forecasts from 12 major banks, dovish tone amid Delta force

ECB meeting a chance to showcase new policy strategy 

“We do not expect the ECB to alter the guidance on PEPP purchases today. Coinciding with the Fed by slowing the pace in December makes more sense. Admittedly, some slowdown is required in order to prepare the markets for post-PEPP QE which will not be on the scale of PEPP but we see December as time enough for that.”

“Assuming we are right and the ECB grabs this first real opportunity to illustrate the policy strategy review actually has meaning, we would expect long-term yields to be tempered and EUR buying enthusiasm to ease. It would help to dampen further gains for EUR/USD.” 

“A decision to begin slow QE purchases would risk creating more uncertainty over the policy outlook and lift EUR/USD more quickly towards our year end forecast of 1.2000 which would be a policy mistake in our view.”