During the first quarter, the Fed’s balance sheet became larger than that of the ECB. Each balance sheet is now close to 23% of its respective nominal GDP.
The chart shows differences in monetary strategies. The ECB line is characterized by its temporary increase from the end of 2011 with the two LTRO. We notice that the Fed has had almost no reversal in its strategy. Measures were not temporary. That’s a real difference and the current perception is that the monetary policy has been more accommodative in the US than in the Euro Area.
We cannot imagine spontaneously a weaker euro is this situation. The amount of euro offered by the ECB is on a weaker momentum than the amount of dollar offered by the Fed. This can be related to a strong euro.
But what would be the impact of the TLTRO? The new ECB measure will add EUR 400bn on its balance sheet by year end (see here for details). The size of the ECB balance sheet with the same level of nominal GDP (first quarter level to avoid distortions) will  increase by 4.1%.
In the US, the QE3 will continue until next fall. The Fed is reducing its asset purchases at each of its meeting but it continue to buy. In May, the amount that was bought was USD 45bn. It will add up to USD 190bn at the end of the operation. With the same GDP level, the balance sheet will increase by 1.1%.
In other words, the spread between the two balance sheets is now 1.2% in favor of the Fed and would converge to 1.8% in favor of the ECB.
If there are still divergent expectations on interest rates, the ECB will increase its own interest rates well after the Fed, there is may be a window for a weaker European currency. As the current account has a large surplus, the drop will not be too important but could converge to the range 1.30 – 1.35 rather than the 1.35 – 1.40 range seen since last September.