EUR/GBP: Proposed Bond Buying by the ECB Shores Up the Euro

Expectations of the European Central Bank’s bond-buying plan were boosted by leaked versions of central bank President Mario Draghi’s plan that bond purchasing would be “unlimited.” As markets look forward to today’s ECB meeting, the single currency is expected to incline versus the Pound in today’s European trading session.

According to Bloomberg reports, two ECB officials said that the central bank’s bond purchases would be sterilized to alleviate concerns about printing money. This would likely mean that the ECB would take measures to control the money supply in the Euro Zone as not to increase even with purchase of unlimited quantities of Italian and Spanish government debts. But the precondition stands, and that is for troubled European banks to seek financial help first from the Euro Zone’s rescue fund. If Draghi would, in any way, give a signal as to the “unlimited” buying of government bonds by the ECB, it would strongly indicate its resolve to overcome the debt crisis.

Taken from Bloomberg News, Emma Lawson, Currency Strategist at National Australia Bank Ltd. in Sydney said that that market is overwhelmed by the details of the bond buying plan of the central bank, which tend to support its previous statements of preserving the single currency. The lack of significant details could mean that judgment of the German Constitutional Court as to the legality of the European Stability Mechanism, before disclosing much information on the issue of bond buying. In any case, the shared currency is projected to rise as the ECB is set to announce plans of its bond buying. Thus, a buy bias is recommended for the EUR/GBP in today’s trades.

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