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21 Jan 2016
ECB: Unreasonable to expect new action today - BBH
FXStreet (Delhi) – Research Team at BBH, suggests that the main event today is the ECB meeting and it is unreasonable to expect new action from the ECB after the policy was eased last month.
Key Quotes
“Changes at consecutive meetings are not unprecedented at the ECB. Recall that Draghi reversed Trichet's rate hikes at his first two meetings. However, now that unorthodox policies are being pursued, there is unlikely to be a consensus without seeing the impact of the most recent actions.
However, the many of the variables that the ECB places emphasis on have worsened. Oil prices are about 25% lower than when it met in December, and on a trade-weighted basis, the euro has risen by more than 4% since early December. Financial conditions more broadly have tightened. Armed with this and the survey of professional forecasters, Draghi is likely to be dovish. What he lacks in urgency, he may compensate with conviction.
If the goal is legitimate, then the means to the end must also be legitimate. Draghi is likely to reaffirm his commitment to using all means at the ECB's disposal to ensure its mandate is met. We anticipate further action around mid-year.
Despite the broader volatility in the capital markets, the euro, with few exceptions, remains largely confined to a $1.08-1.10 trading range. The two-year differential between the US and Germany is at marginal new lows for the year, and while this is supportive for the euro, the anticipation of a dovish Draghi may be deterring buyers.”
Key Quotes
“Changes at consecutive meetings are not unprecedented at the ECB. Recall that Draghi reversed Trichet's rate hikes at his first two meetings. However, now that unorthodox policies are being pursued, there is unlikely to be a consensus without seeing the impact of the most recent actions.
However, the many of the variables that the ECB places emphasis on have worsened. Oil prices are about 25% lower than when it met in December, and on a trade-weighted basis, the euro has risen by more than 4% since early December. Financial conditions more broadly have tightened. Armed with this and the survey of professional forecasters, Draghi is likely to be dovish. What he lacks in urgency, he may compensate with conviction.
If the goal is legitimate, then the means to the end must also be legitimate. Draghi is likely to reaffirm his commitment to using all means at the ECB's disposal to ensure its mandate is met. We anticipate further action around mid-year.
Despite the broader volatility in the capital markets, the euro, with few exceptions, remains largely confined to a $1.08-1.10 trading range. The two-year differential between the US and Germany is at marginal new lows for the year, and while this is supportive for the euro, the anticipation of a dovish Draghi may be deterring buyers.”