Draghi takeouts: EUR weaker despite the removal of easing bias - AmpGFX

Greg Gibbs, Analyst at Amplifying Global FX Capital, points out that the ECB removed a key element of its easing bias last week and the statement showed that they were prepared to expand its asset purchase plan if the outlook deteriorated.

Key Quotes

“Specifically, the removed sentence was: “If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, we stand ready to increase the asset purchase programme (APP) in terms of size and/or duration.”

“Some, not all, analysts thought that this would go, but most would agree that it was past its used by date.  The ECB had probably kept it in this long because it did not want to spook a market that was highly reactive to any suggestion of approaching QE policy tapering or exit.”

“I don’t want to read too much into price action, as there has been a lot of noise lately that is hard to square with developments.  But it does suggest that the market has largely come to terms with the gradual wind-back in ECB policy easing, and the EUR may have largely built-in an end to QE asset purchases in September.”

“The EUR may now have less upward momentum, or that upward momentum may require clear evidence that the ECB is achieving its mandated inflation goals and will consider a faster pace of policy exit.”

“You might say that the tone of the ECB press conference de-emphasised the removal of the asset purchase plan easing bias, and place more focus of the other parts of the statement that guide the path for rates and its asset reinvestment policy. In other words, Draghi was trying to ensure the EUR did not rise too much.”

“The fact that the EUR has fallen during the press conference and remains lower may be seen as a win for Draghi and the ECB that has expressed concern over the strength of the exchange rate since last year.”

“You might say there was a dovish tone in the press conference, but the reality is that Draghi’s tone has been pretty even for much of the last year.  It would be more accurate to say the market was more amenable to absorbing the dovish parts of the presser.”