A view from Deutsche Bank’s strategist George Saravelos ….
“Despite a sluggish growth outlook, we see two reasons why ECB policy will be more supportive of the euro in 2013. First, we don’t believe the ECB will cut deposit rates to negative, because these risk tightening rather than easing financial conditions. Second, after a year where ECB balance sheet growth outpaced all other central banks, we think 2013 will see the opposite. The LTRO window that opens at the end of January will give Eurozone banks the option to pre- pay close to 1 trillion of liquidity on a rolling weekly basis, providing much more two-way risk to the ECB balance sheet. Even if the ECB activates OMT or engages in purchases of private-sector assets to further ease monetary policy transmission, the size is likely to be significantly smaller than Fed QE, while also serving to compress Eurozone risk premia.”
(eFXnews)
