Earlier we previewed the prevailing consensus which expected Draghi to announce some easing if not in monetary policy, then in the bank’s QE program to make more German securities eligible. However, that did not happen and instead Draghi said the Eurozone has weathered the Brexit fallout and that at this point the ECB did not have enough information to take decisions in regard to altering the current QE programme, with no attention paid to specific instruments.
This means that the collateral squeeze will continue over the next few months, and since the pool of securities – especially those belonging to Germany – will decline further (recall UBS forecast that the ECB may run out of Bunds to monetize as soon as several months from now), it means that paradoxically, Draghi’s less dovish than expected announcement has pushed Bund yields lower, if only for now.
And since Draghi also said hinted that it is now time for the monetary policy handover to fiscal stimulus, a move seen as less dovish than expected, the EUR has pushed modestly higher, if only in early trading.
As usual Draghi left himself a loophole, and said that the ECB remains willing to act by using all tools available.
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