Euro Drops Despite ECB Dropping Easing Bias

Mission accomplished by Draghi. ECB President Draghi will no doubt have walked away from the latest ECB meeting and press conference with a certain bounce in his stride as he successfully managed to talk down the euro despite delivering a hawkish adjustment. 

Whilst the ECB kept rates unchanged and made no changes to the current quantitative easing programme, Draghi did drop the easing bias in the forward guidance. This effectively moves the ECB one step closer towards ending its stimulus programme, a hawkish move in no uncertain terms. 

As is common from Draghi, hawkish moves are often accompanied by a dovish press conference in order to keep a balanced approach and to prevent the euro getting carried away with itself. 

And today was no different, with Draghi persuading the markets that the move to drop the easing bias was a “backward looking”, “unanimous decision”, pouring cold water on any suspicions that the ECB had suddenly turned hawkish. 

Draghi also continued to stress that victory can’t yet be declared on inflation, which is now only expected to reach 1.4% in 2019, down from 1.5%.  

On trade wars an increasingly more outspoken Draghi wasn’t going to let this opportunity pass without some comments directed at Trump over his steel tariffs. 

Although potentially the most out spoken comment from any central bank President in recent times it was still delivered with a certain element of European elegance “If you put tariffs against your allies, one wonders who the enemies are?” 

Draghi made clear his opinion that unilateral trade decisions are dangerous which sucked more life out of the euro. 

Market reaction: 

EUR/USD was trading around 0.3% lower moving into the announcement at $1.2370. Following the dropping of the easing bias, the single currency soared, hitting a peak of $1.2446. 

However, through the course of the distinctly dovish press conference EUR/USD pared gains. With the help of upbeat consumer sentiment data and diminishing trade war fears in the US, EUR/USD continues to sink lower hitting a low of $1.2325.  

A stronger euro had been a source of concern for the ECB given its negative effect on inflation, today’s post press conference decline could work to alleviate some of those concerns, at least in the short term. 

 The weaker euro and improved global sentiment has seen European indices charge higher. The DAX is up just shy of 1%, whilst EuroStoxx index is trading some 1.15% higher.