The Euro briefly dropped to an eleven year low of 1.1026 against the dollar, ahead of the ECB Governing Council meeting in Cyprus, where further details of the QE programme are set to be confirmed.
Meanwhile, the latest inflation data show a marginal improvement, with HICP inflation data showing a marginal improvement, of -0.3% in February, compared to -0.6% in January, according to Eurostat, causing some investors to question the QE measures.
Mauro Vittorangeli, CIO Conviction Fixed Income at Allianz Global Investors, said: “The central bank has introduced quantitative easing (QE) at a time when many see signs that the cycle may be turning for the better in the Eurozone. Indeed, the ECB is likely to announce an uptick in 2015 growth forecasts on Thursday.
“Yet, the huge influx of liquidity as a result of QE is creating a distortion in the market and there is a very real possibility that negative yields could move further up the curve in the short-term. That’s more pain for investors trapped by Mr. Draghi’s double whammy of the negative deposit rate on one side, and QE on the other” he adds.
Gilles Moecand Ruben Segura-Cayuela, Europe Economists at Bank of America Merrill Lynch disagree: “We think that the central bank will make it plain that reaching a pace of inflation which would be not too significantly lower than 2% by the end 2017 – which we think is the “policy relevant horizon – is actually conditional on the implementation of QE.”