With the likelihood that the European Central Bank (ECB) could announce further bond purchases by the end of this year, and interest rate increases not even a consideration at this point, for the time being, analysts at Wells Fargo see limited upside and some potential for downside in the EUR/USD pair.
Key Quotes:
“The key takeaway is the December meeting should see the announcement of some further bond purchases above those currently planned beyond March 2022. To be sure, there are several forms those additional asset purchases could take, and some further increase in PEPP purchases still remains a possibility. However, considering recent comments, we perceive a pivot from PEPP purchases to APP purchases as the most consistent with an economy that no longer requires "emergency support" but still requires forceful and persistent policy accommodation. Moreover, the exact pace of APP purchases from around Q2 next year will depend in part on the pace of overall purchases at the time the PEPP program concludes.”
“For now the combined pace or purchases looks to be around €85 billion per month, including €65 billion of PEPP purchases and €20 billion of APP purchases, a combined pace that could be nonetheless be subject to further change. Still, with the likelihood that further bond purchases will be announced by the end of this year, and interest rate increases not even a consideration at this point, for the time being we see limited upside and some potential for downside in the EUR/USD exchange rate.”