The ECB make changes to QE

London (Dec 16)  ECB leaves policy rates on hold (as expected).  Refinancing Rate At 0.00%, Deposit Rate At -0.50% And Marginal Lending Rate At 0.25%.

The ECB said it will discontinue net asset purchases under the PEPP at the end of March 2022.

The Governing Council decided to extend the reinvestment horizon for the PEPP. It now intends to reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2024.

"The Governing Council judges that the progress on economic recovery and towards its medium-term inflation target permits a step-by-step reduction in the pace of its asset purchases over the coming quarters. But monetary accommodation is still needed for inflation to stabilize at the 2% inflation target over the medium term. In view of the current uncertainty, the Governing Council needs to maintain flexibility and optionality in the conduct of monetary policy".

Essentially this means that the ECB is lowering the second QE programme and bolstering the initial QE program.

Money markets ramp up ECB rate hike bets, and now price in 15 Bps of rate hikes by Dec 2022 Vs 8 Bps before the ECB statement.

EUR/USD like GBP/USD also rose following the policy announcement. The pair is now 0.37% higher on the session and has broken through the psychological 1.13 level. Looking at the hourly chart below the pair is still in an almighty sideways trend. The higher timeframes suggest that 1.1382 is the consolidation high that the bulls need to breach to try and reverse the downtrend the pair has been in for some time.

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