Eurozone: Tapering on the horizon – HSBC

The EUR had a mixed month in September, depreciating by 0.6% versus the USD, notes the analysis team at HSBC.

Key Quotes

“In the first week of the month EUR-USD trended upwards as we approached the ECB rate announcement on 7 September. The market unanimously expected unchanged policy from the ECB, with all eyes focussed on the press conference that would follow. Mario Draghi signalled that the announcement of the ECB’s tapering programme would likely take place at the next meeting on  26 October, commenting that very early discussions had already taken place but with the ‘bulk of these decisions’ to be taken in October. This hawkish progress, combined with only moderate comments on the EUR strength, meant EUR-USD hit its high for the month on 8 September  at 1.2092.”

“The German federal election took place on 24 September. As the month progressed and the election drew closer, the average implied probability from betting odds of Angela Merkel winning increased to a peak of 97.7% on 21 September (Oddschecker). Merkel’s conservative CDU (with its CSU sister party) did indeed win the largest share of the vote at 33.0%. But this result was slightly below the 36% expected by pollsters and was 8.5ppts lower than the vote share in 2013. This opens up the possibility of a so-called ‘Jamaica’ coalition between the CDU/CSU, the liberal FDP and the Greens that would put Merkel in power for her fourth consecutive term. This result, coupled with a more hawkish Fed a couple of days earlier, put EUR-USD under pressure hitting a low of 1.1717 on 27 September.”