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The ECB and the risks of doing nothing
The ECB meets on Thursday with growing pressure to do more to combat the threat of deflation and to stimulate growth. Market consensus suggests rates will be unchanged and there'll be no new "unconventional measures" announced, at least not yet. But Saxo Bank's Head of FX Strategy, John Hardy, says peripheral countries are still struggling and more needs be done to relieve their debt burden. Without more monetary easing, he says there's a heightened risk of confrontation between core Europe and its peripheral neighbours.
There's plenty of talk about what the ECB could do in the future, not least the ending of the "sterilisation" of its sovereign bond purchases. Saxo's Steen Jakobsen sees this as QE by stealth and he's warning that we're going to see some sort of quantatative easing through the back door. However, the ECB tinkering with policy is likely only to be a "sticking plaster" which still doesn't address Europe's fundamental problems.
John Hardy explains that the euro is likely to be the currency to suffer over coming months. There's been a perception, he says, that because peripheral spreads have been coming down, the ECB is a great firewall between contagion and any sort of devaluation or default scenario. That "complacency", as he calls it, has peaked and we could be entering a new reality.
01:53 minutes
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