Euro rises after ECB meeting regardless of lack of hawkishness
The U.S. Dollar is trading in wild ranges
this morning as markets react to the European Central Bank’s decision to delay
any monetary policy tightening. Shockingly, the Euro is up as ECB President
Mario Draghi is explaining that QE will not be changed and that officials are
still committed to expanding and extending the program as needed, yet none of
this is having a negative effect.
In fact, he admits that inflation is
dragging, but feels very confident on the strength of the economic recovery. Basically,
it looks like Draghi and other members felt the fall will provide all the
necessary data and analysis that provide enough confidence to act on increasing
interest rates without jeopardizing the progress being made.
Overall though, the U.S. Dollar is faring
better across the board with positivity built from good housing numbers. The
greenback also was not affected tremendously by the Bank of Japan’s
announcement in which they upgraded their GDP forecasts, but lowered their
inflation expectations, again. It seems like tapering of easing measures
will happen everywhere, but in Japan.
The Euro is trading in wild ranges, swinging within a 75-point
range as markets gauge the ECB’s thinking. As expected, rates were not changed, but there
seems to be a counterintuitive correlation between the dovish tone of delaying
action and the Euro appreciation we are seeing. ECB’s Draghi sounds very cautious
Furthermore, he said that tighter
financing conditions are “the last thing” the ECB wants. As we interpret it,
the Euro deserves credit and its value reflects the lack of political calamity
that once seemed possible for the continent as well as the economic
strengthening that has spread beyond Germany. The ECB just wants to keep
enjoying the show and go on vacation.
The Pound weakened by over half a percent following a lack of
agreement on the amount the UK must pay the EU with a now very intense French
delegate’s demand that they pay big time. Prime Minister Theresa May is already under a lot
of pressure, but now she must explain to Parliament that the EU is serious
about payment of obligations before any trade deals is possible.
Bruno Le Maire, France’s Finance
Minister, even went as far as quoting former British Prime Minister Margaret Thatcher
in saying, “We want our money back.” The tensions play poorly for a Brexit
team struggling to have a cohesive message in the face of EU lawmakers ready to
make the divorce proceedings punitive.