Euro falls, European stocks firm, on ECB bond-buying taper plans

The euro fell against the US dollar and European stock markets firmed following the ECB's announcement it would halve it's bond-buying programme in 2018 but not withdraw it suddenly.

Euro falls, European stocks firm, on ECB bond-buying taper plans

The euro weakened against the dollar, while European stock markets firmed, following the European Central Bank’s (ECB) announcement it will halve its bond-buying programme.

The euro slipped to $1.1740 against the US dollar, following the announcement. However, the EUROSTOXX 50 was up 0.6%, little changed from where it was when the announcement was made. Although that's a little lower than the pre-announcement session high.

The DAX was also up 0.6%, while the French CAC was 0.8% higher. The Spanish IBEX, meanwhile, has climbed some 2.2% in mid-afternoon trade.

ECB statement

The statement from the ECB’s governing council, said the central bank would continue its asset purchase programme at €60 billion per month, until the end of 2017. From 2018, the programme will be halved to €30 billion per month until September “or beyond, if necessary.”

“If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the APP in terms of size and/or duration,” the statement said.

The announcement was broadly in line with expectations leading up to the decision.

Indeed, responding to questions in the session following the announcement, Draghi told reporters he believed the market reaction had been muted, suggesting the ECB’s communication on this important detail was “pretty effective.”

ECB support likely to extend beyond September 2018

During the press conference, Draghi was asked a number of questions on a QE end-date. He told reporters there was no fixed time frame.

Draghi also suggested, through his answers, that the asset purchase program could continue beyond the end of 2018.

And, asked if the support would be withdrawn should the Euro Zone economic recovery prove stronger than anticipated, he said: “This is our commitment, we don’t foresee changes now.”

Today’s announcement and Q&A session appears to have proven positive for investors. The ECB has no plans to suddenly withdraw its support, even if the economy proves stronger than they currently anticipate.

In the meantime, they are moving towards ‘normalisation’ of central bank policy. But, the pace remains very slow.

As of 14:57 BST, Thursday, 26 October, EUR/USD share price is 1.1147.

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