Both the Federal Reserve and the European Central Bank are expected to make interesting tapering decisions in the near future. Nordea economists believe the Fed’s potential for an aggressive wind-down of purchases is greater than the ECB’s, implying a stronger USD is likely.” At the June meeting, Jay Powell and the Fed finally acknowledged to discussing about tapering, and it appears that a decision will be made at the September meeting, maybe with numerous taper forewarnings in July and August. Normally, the Fed would use the Jackson Hole conference in late August to give a very definite indication of when the tapering process would begin. This is very likely to happen again this time.”
“The PEPP’s net purchases are expected to terminate in March 2022, and the ECB is expected to decide on slowing bond purchases at its September meeting. The pace of buying is expected to slow in August, but this is primarily due to seasonality, as bond issuance volumes typically decline in August. When the PEPP expires, we expect the ECB to expand the Asset Purchase Program (APP), but the end outcome will still be a much slower pace of buying than it is now.”
“We maintain our 1.15-1.16 target for EUR/USD this year, although we see risks of higher EUR/SEK readings throughout the summer, but improved NOK performance. We expect USD strength to be broad-based (as is normal throughout a tapering process), as well as against major peers such as the Chinese yuan and the Japanese yen. After a faster-than-expected vaccination programme and a semi-surprising Brexit deal shortly before the New Year, the GBP is on the verge of hitting peak positivity.”
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