ECB President Draghi boosts the Euro – 28th June 2017
ECB President Draghi boosts the Euro – 28th June 2017
A speech by the ECB’s Mario Draghi was the catalyst for sending the Euro to the top of Tuesday’s leader board as it gained by one and a half US cents. Mr Draghi spoke of “a strengthening and broadening recovery in the Euro area” and expressed “confidence that monetary policy is effective”; he also noted the need for “persistence” in that policy and “prudence” with regard to modifying it. Investors came to the conclusion that the ECB President was setting the scene for a wind-down of the bank’ asset purchase programme, maybe beginning even before the end of the year.
The Euro reacted positively, adding half a cent straightaway and picking up the balance during the remainder of the London session. It went up by four fifths of a cent against Sterling.
The Bank of England governor spoke of concerns about over-extended consumer borrowing and the US Federal Reserve chairperson conceded that asset valuations might look “somewhat rich”. Neither had an immediate effect on exchange rates but Janet Yellen’s words did appear to dampen appetite for the US Dollar.
Mario Draghi had more impact on Sterling than Mark Carney. His optimism was worth an immediate quarter of a US cent to GBP/ USD and Sterling went on to book a profit of one US cent on the day. The CBI’s Distributive Trades Survey helped: the retail sales measure jumped to 12% in June from 2% in May. This morning’s Nationwide index did Sterling no harm either, showing 1.1% monthly and 3.1% annual increases for house prices.
The Fed chairperson’s comments on asset valuations have been compared by some to her predecessor’s observation during the dotcom bubble of the nineties. Alan Greenspan asked in 1996 “how do we know when irrational exuberance has unduly escalated asset values?” Ms Yellen cannot have been scaremongering but it was unfortunate that her observation coincided with the emergence of another round of ransom-ware cyber attacks.
Carney and Draghi will be out there again today, taking part in the ECB Forum on Central Banking together with the Bank of Canada’s Stephen Poloz. Journalists will be trying to find out if Mr Carney shares the guarded enthusiasm of Ms Yellen, Mr Draghi and Mr Poloz for a move towards more “normal” monetary policy.
Their appearance comes after lunch, by which time investors will already have heard – and probably forgotten – about French consumer confidence, Spanish retail sales, Euroland money supply, Swiss business confidence and Italian inflation. They might have paid closer attention to the US trade figures but even that is not guaranteed nowadays.