The European Central Bank (ECB) October meeting looms large as inflation pressures guarantee a heated discussion inside the Governing Council. The central bank is on track to end its pandemic emergency purchase programme.
The main event of the trading week for currency traders is the ECB meeting scheduled two days from now. The central bank is on track to end its pandemic emergency purchase programme in March next year, leaving close to EUR100 billion unused.
At the same time, with the end of the pandemic emergency purchase programme, the central bank is expected to expand its regular program of asset purchases by EUR20 billion per month, double the current size. But the key for traders is how committed is the ECB to open-ended quantitative easing?
That is the real question because inflation will likely weigh on any such decision. Earlier today, the producer prices for the month of September in Spain rose by +23.6%, the highest increase since 1977. Producer prices are usually transferred to consumers, and so the consumer price index will likely increase too. This is where the ECB’s mandate kicks in, as it aims at price stability below or close to 2% inflation.