After the ECB left the interest rate unchanged at 0.75% as expected, President Mario Draghi faced the press in the usual press conference. The higher value of the euro was noted by Draghi – this is one of the downside risks to growth. Despite some smoother talk about the exchange rate, the euro ends the conference 100 pips lower. Yet again, Draghi talked about a financial markets improvement contrary to issues in the real economy. Recovery expected later in the year.
Here are the highlights of the event, the full live blog and background information.
Highlights
- Draghi warns about risks to growth due to the interest rate – EUR/USD plunges
- Appreciation of the euro is a sign of return of confidence, but should reflect fundamentals
- Exchange rate is not a policy target.
- Risks to the downside.
- Inflation to fall later in the year, and so is the recovery.
- LTRO repayments reached around 140 billion euros.
- We are not the Fed, but still accommodative.
- Unanimous decision about the interest rate.
- Refuses to answer questions about Anglo-Irish and deflects questions about the Italian scandal.
- Indirectly criticizes Fed and BOJ for FX intervention, that is not in the G-20 consensus.
- Support at 1.3486 broken and eventually confirmed.
Live Blog
- 13:15 GMT Press conference begins at 13:30 GMT. All times are GMT.
- 13:15 You can watch the presser live here. Note that the US will release weekly jobless claims at the same time. You can follow that here.
- 13:16 EUR/USD sliding quite a bit towards the event – from 1.3565 to 1.3540. It could be a false move though.
- 13:18 The ECB usually refrains from talking about exchange rates, but only quotes G-20 decisions on the matter: that currencies should float. Draghi may stick to this stance.
- 13:20 Lines to watch on the downside: 1.3486, 1.34. On the topside: 1.3588, 1.3610 and 1.3690. For more lines and charts, see the EUR/USD forecast.
- 13:22 A thought: EUR/USD is now sliding. If Draghi does not talk FX, the euro could rise. Is this a buy opportunity?
- 13:25 EUR/USD ticking a bit higher once again, back to 1.3550. Tension is mounting.
- 13:26 One of the reasons for the higher euro is the ECB: it has been receiving repayments of the LTRO, and this is a form of tightening, happening whilst the BOJ and the FED are printing more currency.
- 13:28 1.3550 is some kind of a “magnet†for the pair before the presser.
- 13:29 Irish reporters are likely to focus on the Anglo-Irish bank issues rather than on monetary policy, but all the other reporters will probably ask about FX, financial markets and if the rate decision was unanimous.
- 13:30 US jobless claims 366K vs. 360K expected – within expectations. See all the releases in this big bulk on the live calendar. Press conference to begin shortly.
- 13:32 Draghi still hasn’t entered the room. This is not typical…
- 13:35 EUR/USD losing patience with Draghi? Ticking a bit lower to 1.3540.
- 13:38 Press conference begins
- 13:38 Draghi begins talking, EUR/USD at 1.3550. Interest rate unchanged, inflation declined further, expected to fall below 2% in coming months. Inflation should remain contained. Monetary expansion subdued. EUR/USD plunges towards 1.3520.
- 13:39 Situation should improve as 2013 progresses. EUR/USD doesn’t recover.
- 13:40 LTRO 140.6 billion already returned. This reflects improvement in financial market confience.
- 13:41 We will “closely monitor†financial markets. Monetary policy to remain accomodative.
- 13:42 Financial market sentiment has improved, GDP is down. Survey shows improvement albeit at “low levelsâ€.
- 13:43 Slow implementations of structural reforms, part of the issues. There are risks to recovery.
- 13:44 Inflation was 2% in January 2%, lower than beforehand.
- 13:45 Indirect taxes, energy push prices higher. Growth limited by higher exchange rate!
- 13:46 Draghi talks FX and the euro falls now below support at 1.3486.
- 13:47 Financial mechanism is one of the building blocs, (“banking unionâ€).
- 13:48 Price developments should remain in stability.
- 13:49 Reduction of current account deficits, contained growth in unit labor costs help exports. Governments should build on achivements of fiscal consolidation.
- 13:50 Questions begin – Anglo Irish is first
- 13:51 No decision on Anglo-Irish yet.
- 13:52 Appreciation of the euro is a sign of return of confidence, but should reflect fundamentals. EUR/USD recovers a bit.
- 13:53 Draghi denies any choreography with the Irish government.
- 13:54 EUR/USD sliding again.
- 13:55 Another question about the euro, regarding a more “proactive†exchange rate policy.
- 13:56 There was an improvement on the financial side.
- 13:57 Cross border activity is growing, in core and non-core countries.
- 13:58 The price of protecting against inflation and deflation has gone down. Markets are in a better situation.
- 13:59 Current accounts continue to improve.
- 14:00 The situation remains fragile, EUR/USD falls to 1.3465.
- 14:01 Credit costs remain challenging, especially for smaller banks.
- 14:02 Regarding the comments of Hollande, it’s important to remember that the ECB is independent.
- 14:03 Our monetary policy is accomodative, we are in the “full allotment modeâ€. We never pre-commit.
- 14:04 EONIA is not that important. It doesn’t reflect everything.
- 14:05 Regarding Ireland, “we unanimously took note†– not saying anything actually.
- 14:06 Regarding the Italian scandal, Draghi points to the Bank of Italy report and the IMF report.
- 14:07 EUR/USD stabilizing under 1.3486 as Draghi deflects Italian issues.
- 14:08 Normally regulators do not have police powers.
- 14:10 Ireland – there is no more ELA, so that is a good thing.
- 14:11 Reporters continue asking about the Anglo-Irish issue, but Draghi refuses to answer.
- 14:12 Regarding Spain, Draghi will go to listen. Draghi will not tel the Spaniards what to do.
- 14:14 Â EUR/USD at 1.3470. It currently bottomed out at 1.3452
- 14:15 Additional analysis by Matt Lifson on the Draghi drag + a chart is here.
- 14:16 Position on negative rates hasn’t changed. So, this is still an option.
- 14:19 Good questions: Italian scandal – is it a warning sign regarding the SSM? And, why not try to influence the exchange rate?
- 14:20 Draghi: we are already working towards job creation and low inflation. We are not the Fed, but still accommodative.
- 14:23 We foresee a gradual recovery, in part thanks to our actions.
- 13:24 Asked about the exchange rate, Draghi says actions will find their way to the economy – EUR/USD already at 1.3430.
- 13:25 It’s important that the governance of the SSM needs to be seen as separate, perhaps like in the US.
- 13:25 Another question about the Italian scandal: the creation of one supervisor will necesiate a change of legislation in the countries.
- 13:26 Removal of bank heads should be a power that the supervisory body should have. “But when you have to deal with frauds, you never know.â€
- 13:27 Unanimous decision about the interest rate. There were discussions about how to improve the financial conditions.
- 13:28 Draghi hints about the FED and the BOJ, indirectly. He mentions long term low rates (FED) and far out inflation targets (BOJ). These policies have impact on the exchange rate which do not reflect the G-20 consensus.
- 13:30 EUR/USD down under 1.3430 before ticking a bit higher.
- 13:32 Another question from Ireland: “we only took noteâ€. The president of the ECB has no say.
- 13:35 Press conference ends – EUR/USD at 1.3450 – 100 pips down.
Background
In the previous presser, Draghi certainly helped the euro: he went from allowing for a rate cut in December to saying that the decision was unanimous. In addition, he was certainly satisfied and content with the improvement in the financial markets, but said that the situation in the real economy is bad. Forecasts stood on lower inflation and a return to growth later in the year, with “positive contagion†from financial markets to the real economy.
Since then, the euro has gone up, against the dollar, pound and especially against the yen. Various politicians and especially French president Hollande, expressed worries. German officials seemed less worried, saying that the exchange rate is close to long term levels. Draghi was expected to refuse to comment on FX, or not express any worries.
Further reading:Â Bad news for EUR might be good news later on
