ECB under pressure

With the Rambo move by the Fed to implement Quant Easing or QE, the ECB suddenly finds itself under pressure to do the same as well.

Major economies like the US and the UK are doing what they can to inject cash into money supply so as to reflate the economies and get money flowing around again.

If proven effective, the worry of deflation will be far from their minds as the excess money will find their way into the prices of goods and services.

However the ECB is standing still for the moment. The eurozone will be in danger of deflation if the they continue to take no steps to release more liquidity in a more direct way.

In a worse case scenario, prices of goods and services will come down, pulling salaries down as well. Asset prices will also fall, endangering overall economic growth in the Eurozone.

In this sense, the Eurozone appears to be behind the curve.

That saying, it is rather difficult for the EZ to do the above-mentioned for its economy. In my team meeting on Friday, my manager mentioned a couple of problems the ECB will have are pricing the many EZ nations' sovereign debt for purchase and that it does not have a central treasury like the US or UK.

On top of that, the ECB has some way to go in terms of cutting its key rate. It stands at 1.5% now. So QE, if it ever happens, will be further down the road.

Yesterday, some ECB members like Weber too, hinted at further easing. The market is pricing in a 50 bps cut at the Apr meeting.

So it'll be interesting to see if the market continues to buy more of EUR now because of the interest rate differential, or still keep to the safe haven allure of the USD albeit the fallout from QE.