ECB recap: damp squib

There was so much fuss made about this key ECB meeting and it ended up being a bit of a damp squib.

There was so much fuss made about this key ECB meeting and it ended up being a bit of a damp squib. The central bank and its president Mario Draghi delivered contradictory statements about inflation and probably left many market participants feeling somewhat disappointed that there wasn’t anything concrete announced. To be fair, the leaked inflation and growth forecasts earlier this week had already taken the edge out of this meeting and many people had already prepared to hear a more dovish than a hawkish ECB. Hence, the euro didn’t exactly fall off a cliff.

As expected, the European Central Bank left its monetary policy unchanged. The only notable change it made in its statement was to drop the reference to "or lower" in the forward guidance. According to the latest policy statement, the Governing Council expects “the key ECB interest rates to remain at their present or lower levels for an extended period of time, and well past the horizon of the net asset purchases." There was no mention of tapering QE.

But the focus was always going to be on Mario Draghi at the ECB press conference. There had been speculation that the ECB President would start preparing the market about the prospects of tapering its massive QE stimulus programme at this meeting due to the recent improvement in Eurozone data and increased pressure from Germany, where several officials including Chancellor Angela Merkel have recently called for tighter ECB monetary conditions.

However, Mario Draghi poured cold water over those expectations. In a way, though, the slight change in tone in the statement was a baby step in preparing the market for potentially tighter monetary conditions in the future. Draghi did say that the euro zone growth risks were now "broadly balanced" as opposed what he had said previously, namely that the risks were to the downside. What’s more, ECB policymakers are increasingly confident that inflation in the eurozone will reach its target level “in a durable way.” Yet, that’s despite the fact the bank cutting its inflation forecasts.

In short, the ECB left the markets with very little to latch on, and appeared a little more dovish than expected. The euro fell in response, but it wasn’t a massive move. As a result, the EUR/USD could actually drift back higher.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.