Importantly, while the ECB is, we believe, using the window created by some stabilization in the Italian markets to pull forward the announcement on QE a bit, that does not translate into an effort to bring expectations for liftoff on interest rates closer, and into the first half, of 2019. We expect President Mario Draghi to make that point clear in next week’s press conference, as well as to stress the extreme accommodation that will still be provided into 2019 by reinvestments and by the massive ECB balance sheet. If the forecasts hold, we continue to expect the first ECB rate hike to come in early Q3 of 2019.
Euro bulls are losing confidence.
The shared currency declined against all of its Group-of-10 peers Thursday after the European Central Bank said it would keep interest rates at current levels until at least the summer of 2019.
The euro was down 1.4 percent at $1.1632, set for its biggest one-day slide since Oct. 2017.
Bunds Rally as ECB Signals No Hike Until at Least Summer 2019
Bunds hit new session low at 159.45 on the taper announcement by ECB, but rapidly reverse decline after the ECB pledges to keep interest rates at record lows until at least the summer of 2019.
German curve steepens aggressively led by 5/30s; +2bps to 134bps
German 10y yield -3bps to 0.46%: Sept Bund futures +25 ticks to 160.32; Spain 10y -2bps to 1.39%; Italy 10y +1bp to 2.82%