As ECB chairman Draghi expressed utter contentment with the economy performance markets took it a a signal for building bullish positions on euro. Relief rally reeled into markets as a few weeks ago, Draghi’s tone was completely different – the head of the central bank was cautious in economic outlook and said that the stimulus needs to be maintained in order to support growth.
Draghi also spoke about inflation, which is not yet reaching the target level. He noted that consumer inflation will remain low for some time, although its growth is obvious and sustainable. Recently, the pressure on the ECB has increased – the markets believe that the European regulator should tighten monetary policy, especially since the Fed has already lifted interest rate twice this year. The main obstacles to the normalization of ECB policy are rather modest economic growth and political uncertainty. Now, especially after the election in France of E. Macron, these factors have somewhat receded into the background.
Yesterday, the EUR / USD pair crossed 1.1300 for the first time in nine months. Today the pair battle to cross through the 1.14 level The head of the ECB expressed optimism about the future of the eurozone economy, noting the obvious recovery, and said that monetary policy should adapt to this recovery. This statement sounded tough for some investors, although we do not think so.
Mario Draghi did not express himself directly about the tightening of the policy, but only mentioned the “adjustment of the parameters.” Markets interpreted these words as a hint of further tightening of monetary policy. We believe that the ECB, on the contrary, does not rule out the possibility of continuing a super-soft monetary policy.