ECB Passes with Little Event - Investec
Research Team at Investec, suggests that the ECB provided little
surprise for financial markets yesterday, with the Governing Council
holding all three policy rates, and QE monthly purchases, steady.
“ECB President Draghi gave a level analysis of the Eurozone recovery, justified previous comments around limited room to reduce rates further, and acknowledged concerns of negative rates on German pensions. Interestingly President Draghi took a defensive stance to justify policy action - stating his predecessor, Jean-Claude Trichet, had said that he would have followed the same policies.
The Euro initially rallied against the US Dollar by a cent on the ECB inaction and tone, but with little new information the Euro gave back the gains later in the session.
Perhaps a more interesting point on the day is the continuing influence of policy easing on risk sentiment in currency markets. Yesterday morning the Riksbank in Sweden increased their monthly QE purchases, but by less than the market had hoped - sparking an initial rally in the Swedish Krone.
In Europe ECB President Draghi refrained from enacting or signalling further stimulus sparking an initial Euro rally. Broadly, the lack of additional stimulus saw stock markets softer yesterday and risk averse moves in currencies markets with currencies like the Australian Dollar and Norwegian Krone giving back recent gains, while the Japanese Yen saw safe haven flows on the day after a recent run of weakness. Put bluntly, large monetary policy easing is still causing a risk-happy trading environment, while inaction by policy makers seems to cause more risk-averse trading flows.”