The ECB did the expected and left policy parameters unchanged with the easing bias on QE still in place. ECB’s President Draghi confirmed that the economy looks stronger and indicated that officials will discuss the future of the QE program, which currently is set to end in December, in autumn. At the same time and especially after the violent market reaction to Draghi’s Sintra comments, today’s press conference was dominated by attempts to prevent markets from running away with speculation on the timing and details of future moves, even as the ECB is inching towards tapering. Draghi stressed repeatedly that officials didn’t want to put an end date to QE. He also indicated that ECB has not been tasked yet with technical details of the follow up QE program and that a taking a decision in autumn doesn’t mean there will be an announcement on QE tapering already in September. As Mr. Draghi said: the last thing the ECB wants is a premature tightening of monetary conditions and today’s press conference was dominated by caution and a central bank head that tried to clarify his Sintra comments. Not that it all went smoothly and Bund futures jumped to an intraday high, before falling to an intraday low, only to come back up again as the press conference continued. At the end of the press conference though Draghi had succeeded and Eurozone yields were broadly down, with peripherals underperforming. Markets are now left with a longer summer break, and today’s confused reaction to Draghi’s comments will likely mean volatility will remain high, against a general trend higher in yields.
EURUSD shot up to 1.1570 from 1.1478 after Draghi highlighted a stronger EU growth outlook. EURGBP is looking on for a test of the eight-month high that were seen last week at 0.8949. Broad gains in the common currency have been carrying the cross higher on the back of the ECB’s monetary policy guidance. The pound is presently showing a 0.8% loss to the euro, and is down by 0.5% versus the dollar, and 0.2% for the worse in the case against the yen, with sterling the biggest loser today out of the main currencies. The fact that markets overlooked above-forecast June retail sales report out of the UK today evidences a pretty bearish underlying view of the pound.
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