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23 Oct 2015
Dovish Draghi pushed Euro to its grave - Rabobank
FXStreet (Delhi) – Bas van Geffen, Quantitative Analyst at Rabobank, notes that although the ECB kept its monetary policy unchanged, it did not leave markets unmoved as dovish remarks by Draghi drove down EUR/USD from 1.1325 at the start of the meeting to around 1.1160 after Draghi left the press room.
Key Quotes
“European equities jumped on the news, and swap rates declined as Draghi stated that “the degree of monetary policy accommodation will need to be re-examined at our December monetary policy meeting, when the new Eurosystem staff macroeconomic projections will be available”.”
“Draghi was eager to give markets another round of dovish comments. So eager, that the press briefing even started ahead of the scheduled 14:30. The ECB’s president made an effort to drive home the point that inaction today does not mean that the ECB sits idly by, and that the Governing Council remains “willing and able to act by using all instruments available.”
“Now, this we had heard before, but the new element was that Draghi said that even a cut in the deposit rate was still an option for the Governing council, indicating several times that this was also discussed as part of the available policy tools. This contrasted with the previous press conference, where Draghi was much more vocal about changes to the asset purchase programme. Point taken. Prior to this ECB meeting, we were skeptical of further cuts in the deposit rate, but we now see a combination of an increase in asset purchases and a deposit rate cut the most likely outcome of the December meeting.”
“Going by the market reaction, we were not the only ones to heed Draghi’s remarks. However, this is also the risk that the ECB now faces: Draghi effectively brought forward some of the benefits of future (expected) ECB activism by raising market expectations of a December move.”
“The central bank will now have to tread carefully and manage expectations, because every benefit it saw from the dovish remarks yesterday is also a diminished impact of an actual move if the ECB fails to beat these expectations when actually decides to ease further.”
Key Quotes
“European equities jumped on the news, and swap rates declined as Draghi stated that “the degree of monetary policy accommodation will need to be re-examined at our December monetary policy meeting, when the new Eurosystem staff macroeconomic projections will be available”.”
“Draghi was eager to give markets another round of dovish comments. So eager, that the press briefing even started ahead of the scheduled 14:30. The ECB’s president made an effort to drive home the point that inaction today does not mean that the ECB sits idly by, and that the Governing Council remains “willing and able to act by using all instruments available.”
“Now, this we had heard before, but the new element was that Draghi said that even a cut in the deposit rate was still an option for the Governing council, indicating several times that this was also discussed as part of the available policy tools. This contrasted with the previous press conference, where Draghi was much more vocal about changes to the asset purchase programme. Point taken. Prior to this ECB meeting, we were skeptical of further cuts in the deposit rate, but we now see a combination of an increase in asset purchases and a deposit rate cut the most likely outcome of the December meeting.”
“Going by the market reaction, we were not the only ones to heed Draghi’s remarks. However, this is also the risk that the ECB now faces: Draghi effectively brought forward some of the benefits of future (expected) ECB activism by raising market expectations of a December move.”
“The central bank will now have to tread carefully and manage expectations, because every benefit it saw from the dovish remarks yesterday is also a diminished impact of an actual move if the ECB fails to beat these expectations when actually decides to ease further.”