Key for the ECB: sterilization

As readers of ForexLive well know, the ECB has been buying the government bonds of the euro area countries with the weakest finances to keep yields from exploding skyward. They so far have been “sterilizing” the purchases from a monetary policy perspective by draining cash injected into the system as a result of the purchases.

If any shift is to come in monetary policy, it will come in that sterilization process. By leaving the extra cash in the system, the ECB could follow the Fed, BOJ and BOE into the realm of quantitative ease. There is a great deal of resistance on the part of Germany to allow for unsterilized bond purchases, so consider a shift a long-shot.

If it does come, it would likely be a negative for the euro as it was in the short-term for both the dollar and the pound.