Fundamental Comment

ECB Lautenschlaeger resignation raises concerns, yet euro rebounds

ECB Lautenschlaeger resignation raises concerns, yet euro rebounds

The resignation of Germany’s appointee to the board of the European Central Bank Sabine Lautenschlaeger from ECB on Wednesday raised concerns about ECB latest stimulus measures.  

Three members were against the ECB’s decision on September to restart bond purchases, including Bundesbank President Jens Weidmann, in addition to governors from France and the Netherlands.

The ECB noticed in the bulletin for this month’s policy meeting that the growth inside the European region remained (moderate) in the first and the second quarters, while recent data showed a continuous improvement in employment sector with "some moderation." The latest economic indicators and surveys of "continuing downside risks" confirmed the growth outlook.

"Core inflation measures remained generally muted" although "wage growth remained strong," the ECB added.

The focus will be on more than 10 billion euros of tax cuts. Policymakers say monetary facilities reach their limits in reviving the eurozone’s slow economy, but Germany is at odds over the provision of fiscal stimulus even though it is on the verge of recession.

Euro rebounds

The euro fell and euro area bond yields climbed earlier on Thursday, but currently we are seeing some recovery.

The EURUSD rebounded from a low of 1.0922, the lowest level since May 2017, where it is currently trading higher at 1.0965.

The U.S. dollar index erased its earlier gains after a report confirming that annual growth in the world’s biggest economy slowed to 2 percent in the second quarter growth from 3.1 percent in the first three months of 2019.  

Bonds yields retreated after its rise earlier today on optimism about the trade talks between the United States and Chinese side after the U.S president remarks about it lowered the demand for the safe haven assets.

German 10-year bond yield slipped 0.17 percent to -0.589 percent after hitting a high of -0.564 percent. Italian bonds for the same maturity fell 0.12 percent to 0.834 percent.

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