A change at the front of the ECB

The US central bank is normally several years ahead of the choices of the European Central Bank (ECB).

1. Indicate that the end of buying government and corporate bonds (quantitative easing or the QE policy) will be stopped in the foreseeable future.
2. Carefully reduce that buying program. 
3. Take a long break after finishing. 
4. Indicate that the moment of the first rate hike in years is approaching.
5. Underline that the moment of the first rate hike in years is really near.
6. Raising the interest. 
7. Making follow-up increases far from each other and constantly emphasizing that if the economic figures get less good, the process can stop.

ECB Governing Council meets
At its meeting on 8 June, the ECB Governing Council decided to drop the so-called "easing bias". A very important question is whether that decision should be seen as the start of the implementation of the above-mentioned step-by-step plan. If that is the case, considerable effects on, among other things, interest rates and the exchange rate of the euro can be expected in the coming years. 

Rethink
As a result, interest rates could come under structural upward pressure for the first time in years. This is because the QE, which is pushing down interest rates, will expire. In addition, the official interest rate of the bank can only go up. Investors in treasury bills of the euro countries would see their shares depreciate in value.

As a result, the euro could strengthen as the EUR/USD rate has priced in the eurozone's continued accommodative monetary policy. If there were any reason to reconsider now, the EUR/USD could come under some significant upward pressure. And as stock prices have been pushed to record highs as a result of very accommodative policies, the prospect of ECB policy normalization is generating quite a bit of headwind in that market.

Time and again the bank indicated that it would keep the official interest rate 'at the current or lower level.' Also for a long time after the bank stops buying government and corporate bonds. However, yesterday Mario Draghi (president of the bank) omitted the part: 'Or at a lower level'.  

Consequences for interest rates
This was quickly interpreted here and there as the bank abandoning its intention to further ease monetary policy. In doing so, the bank is taking a first step towards the normalization of monetary policy in the euro area country. That process will, of course, be very slow, just like in the US. 

That interpretation seems to me to be incorrect. Why do I think that? You can see that in our interest video on Monday 12 June. 

Conclusion?
The conclusion seems to be provisional that, even after the meeting, the ECB has not even taken the first step in the roadmap. In other words, the stock market need not worry that the driver of recent years (the very accommodative monetary policy) will soon become less prominent. And interest rates will remain very low for the time being. Should these suddenly come under upward pressure, the ECB is ready to intervene to nip it in the bud. 

For EURIBOR rates, this means that they will remain low for even longer. Those rates depend on the official interest rate of the ECB and before the bank raises that interest rate, a lot of water will still flow through the Rhine.

It looks very likely that the impact on the EUR/USD will come mainly from the monetary front in the US. If there is any influence coming from the eurozone, it will mostly have to do with politics, with new talks about aid to Greece or with the elections in Italy later this year. There is a good chance that the impact on the EUR/USD will be downward rather than upward.