Market wrap: EUR fell sharply on ECB taper announcement - Westpac

Analysts at Westpac offered their market wrap.

Key Quotes:

"Global market sentiment: The EUR fell sharply, following the ECB’s dovish tapering announcement, boosting the US dollar. US bond yields rose slightly, as did equities.

Interest rates: US 10yr treasury yields initially rose from 2.41% to 2.46%, while 2yr yields initially rose from 1.58% to 1.62%. Fed fund futures yields remained elevated, pricing the chance of a December rate hike at 95%.

Currencies: The US dollar index is up 0.9% on the day. EUR fell sharply from 1.1815 to 1.1660 (a three-month low) following the ECB’s tapering decision, probably welcome by the ECB which may have feared a reaction in the opposite direction. USD/JPY rose from 113.30 to 114.00. AUD fell from 0.7720 to 0.7666 – a three-month low. NZD fell from 0.6900 to 0.6838 – a five-month low. AUD/NZD continued to consolidate, between 1.1170 and 1.1240.

Economic Wrap

ECB decision: as expected, a tapering of its QE program was announced. The asset purchase program was reduced from a monthly volume of EUR 60bn to EUR 30bn (within expectations) and the duration of the program was extended for another nine months (some had expected six) to Sep 2018.

However, Draghi also issued a dovish statement. The main message was that while the economic outlook has improved considerably and the ECB is increasingly optimistic on developments in the areas of investment and in particular job creation, it still considers that this depends on ongoing stimulus. There is still no commitment to an end date for net-asset purchases and the ECB maintained that the QE program can still be extended in size/or duration if necessary. The ECB's stock of purchases will be maintained until after September, as will the accommodative policy rate."