An opinion exists that London's euro-clearing hub works very efficiently and that making any alterations to current practices will hurt the EU economy. Therefore, it might be a purely political question rather than economic. What do you think on this matter? Why?
© Dominic White
I think London's clearing system does work pretty efficiently, but there are issues related to the clearing of euro-denominated securities taking place in the jurisdiction beyond the ECB's influence that will arise once the UK leaves the EU. A great concern is how the efficiency of the overall clearing system will be affected once euro-denominated clearing moves to somewhere in the EU, more precisely, in the Euro zone. Does it make sense for banks to have one part of their clearing infrastructure in London and another part somewhere in continental Europe? In my opinion, such system certainly becomes less efficient, but the issue is whether some banks and other institutions decide to move the entire clearing infrastructure to another part of Europe. I am not sure whether we have a complete parity over that yet, but it is certainly a problem that will come forward over the next two years.
The ECB left the interest rate at record-low level of 0% at the July 20 meeting. In your opinion, for how long will the current monetary policy remain in place?
In terms of interest rates, they will certainly remain at the current levels for quite a long time, at least beyond the end of 2018. In the near term, however, there is the question is what the ECB does with the Quantitative Easing programme. I think that there is a number of reasons to believe that it will be altered before the end of the year, at least because the current programme is due to expire at the beginning of next year, so some kind of alterations will need to take place and it looks quite likely that we will see the QE gradually wound down through the course of 2018 and interest rate adjustments will be considered following that period.
What are your forecasts for EUR/USD and EUR/GBP currency pairs?
In the long term, we are expecting the Euro to head up towards 1.30 against the US Dollar; however, this is probably two or three years out. Against the Pound, we could see parity over a similar horizon.