Forex Flash: Draghi doesn´t hint at change in ECB policy – BBH
FXstreet.com (Barcelona) - Marc Chandler, Global Head of Currency Strategy at Brown Brothers Harriman notes that Draghi's initial remarks seem fairly optimistic for a central bank in which that the economy it is overseeing is contracting. The ECB President also noted an improvement in sentiment and some greater financial integration.
Chandler feels that the point about financial integration is important as this is partly the transmission mechanism that prompted the Outright Market Transaction scheme in the first place. He writes, "It is also partly the increased foreign participation in the Spanish and Italian bond market. More broadly this is the improvement in financial conditions, declining yields in the periphery, rising equity markets and the gradual return of depositors. It is also the improved current account balances, which is also reflected in Target2 imbalances."
The decision today, unlike in December was unanimous. That is in December, many wanted to cut rates, though none were delivered. Today, no one favoured reducing rates.
The key take away for Chandler today is that the bar to another rate cut is higher than seemed the case last month, a point that is reflected in both the implied forward rates and in the euro moving above 1.3150. He finishes by writing, "We look for a retest on the $1.33 high seen in mid-December and again at the start of the year. If improved financial conditions do not lead to improvement in the real economy, a rate cut expectations may return, but this now seems like a Q2 potential not Q1."
Chandler feels that the point about financial integration is important as this is partly the transmission mechanism that prompted the Outright Market Transaction scheme in the first place. He writes, "It is also partly the increased foreign participation in the Spanish and Italian bond market. More broadly this is the improvement in financial conditions, declining yields in the periphery, rising equity markets and the gradual return of depositors. It is also the improved current account balances, which is also reflected in Target2 imbalances."
The decision today, unlike in December was unanimous. That is in December, many wanted to cut rates, though none were delivered. Today, no one favoured reducing rates.
The key take away for Chandler today is that the bar to another rate cut is higher than seemed the case last month, a point that is reflected in both the implied forward rates and in the euro moving above 1.3150. He finishes by writing, "We look for a retest on the $1.33 high seen in mid-December and again at the start of the year. If improved financial conditions do not lead to improvement in the real economy, a rate cut expectations may return, but this now seems like a Q2 potential not Q1."
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