The Dollar slumped to session lows as the Euro jumped to HOD, and back over 1.22, following a Reuters report that while ECB policymakers are "likely to discuss a small tweak in their communication stance at their March 8 meeting" no major policy shift is expected.
According to the report, the ECB is hoping to delay any discussion of the inevitable, and hawkish, tapering of QE and amid concerns about recent market turbulence, the strong euro and a dip in both headline and underlying inflation, the ECB prefers to wait "perhaps as late as the summer", before starting to signal the end of asset buys, the sources said.
The market reaction was quick, pushing the EUR to session highs even as the market debates if the concurrent Powell presentation is dovish or hawkish.
As Reuters adds, having bought more than 2 trillion euros worth of bonds to prop up inflation, the ECB is expected to shut its bond purchase scheme by the end of the year, satisfied that robust economic growth will lift consumer prices, even if only slowly. But the sources said the bank wants plenty of evidence that inflation will rise, fearing damage to its credibility if moved too early and had to reverse course.
Some more details on how the ECB has trapped itself, and just like custer, is facing its last stand, in the words of Paul Tudor Jones:
The most ambitious change to be discussed at the meeting could be a proposal to give up the bank’s so-called easing bias, a stipulation that the ECB could increase asset buys if necessary.
While this would be relatively uncontroversial as few if any expect bigger purchases, policymakers rejected such a suggestion in January and the sources said fundamentals did not change enough since then to make such a tweak certain.
And while Reuters is known for spreading ECB trial balloons, if accurate this suggests that a broader decision about revamping the bank’s guidance, already flagged for “early” 2018, will not come this month, with some policymakers arguing that such a shift could wait until April or June.
The bottom line: it's all about the market, and the ECB knows that the moment the end of QE is announced, the shockwave will be major:
“There is general concern about market volatility and inflation has been heading down so it’s clearly not the right time,” one of the sources said. “The easing bias could easily go but even that might have to wait. There is fear about signaling too much and increasing market volatility,” the source added.