Verbal Intervention In Full Force
We’ve previously discussed how verbal intervention by central bankers can impact the markets and this week has been a prime example. Earlier in the week, ECB chief Mario Draghi lit a fire under the Euro during his comments made at the ECB Forum in Sintra. The ECB chief struck a far more positive tone than in the week prior during the very balanced press conference that followed the ECB meeting.
This time around Draghi noted that “as the economy continues to recover, a constant policy stance will become accommodative, and the central bank can accompany the recovery by adjusting the parameters of its policy instruments – not in order to tighten the policy stance, but to keep it broadly unchanged”.
What Does It Mean?
To summarise this, Draghi is saying that if prices continue to rise as the ECB forecast them to into 2018, then ECB policy will become more accommodative as inflation increases. Furthermore, Draghi noted that “all the signs now point to a strengthening and broadening recovery in the Euro area” adding also that “deflationary forces have been replaced by reflationary ones”. Draghi also noted that the risks of “hysteresis effects” were diminished and that the bank can “now be confident that our policy is working and that those risks have abated”.
ECB Policy On The Turn
The speech can be viewed as a departure away from the traditional “whatever it takes” approach, to more of an “it will take less” perspective; marking the start of the turn towards tighter monetary policy. Today is the final day of the forum, and notably, at 1.30pm BST, there will be a policy panel featuring BOE’s Carney, BOJ’s Kuroda and BOC’s Poloz which will be closely watched by traders.
Read more: https://www.orbex.com/blog/2017/06/eurusd-approaching-critical-level-draghi-fires-bulls/