8 May 2014
Draghi drops 'ready to act in June' bomb
FXStreet (Łódź) - During the press conference following ECB's monetary policy meeting on Thursday, at which the Governing Council decided to stay on hold in May, Mario Draghi signaled that they were ready to take action in June.
The initial prepared comments did not contain any shocking information, with remarks that the recovery in the Eurozone was proceeding as expected, that inflation would remain low before starting to rise towards the 2% target in 2016 and that rates would be kept at present or lower levels for an extended period of time.
Draghi also added that geopolitical tensions could have a negative impact on the inflation outlook and that the ECB would closely monitor exchange rate developments. Then he added that the stronger euro combined with lower inflation “is cause for serious concern” and proceeded to drop the “ready to act in June” bomb.
EUR/USD surged to new 2014 highs close to 1.4000 as Draghi read his prepared remarks, and fell again when he hinted at the June action.
The ECB head stated that the Governing Council was still waiting for the staff macro projections, which would be available at the beginning of next month but that they would act if short term market rate volatility spilled over into medium rates.
Jamie Coleman comments on FXBeat that in response to Draghi's pledge to take action next “EUR/USD could sell off in anticipation of that meeting.”
“If they do nothing more than cut the refi rate to near-zero and trim the deposit rate mildly below zero, then EUR/USD will likely rally. It will take a QE-like program or intervention to have much sustainable impact,” the expert predicts.
“If nothing else, volatility should rise over the remainder of May, a welcome condition for traders.”
The initial prepared comments did not contain any shocking information, with remarks that the recovery in the Eurozone was proceeding as expected, that inflation would remain low before starting to rise towards the 2% target in 2016 and that rates would be kept at present or lower levels for an extended period of time.
Draghi also added that geopolitical tensions could have a negative impact on the inflation outlook and that the ECB would closely monitor exchange rate developments. Then he added that the stronger euro combined with lower inflation “is cause for serious concern” and proceeded to drop the “ready to act in June” bomb.
EUR/USD surged to new 2014 highs close to 1.4000 as Draghi read his prepared remarks, and fell again when he hinted at the June action.
The ECB head stated that the Governing Council was still waiting for the staff macro projections, which would be available at the beginning of next month but that they would act if short term market rate volatility spilled over into medium rates.
Jamie Coleman comments on FXBeat that in response to Draghi's pledge to take action next “EUR/USD could sell off in anticipation of that meeting.”
“If they do nothing more than cut the refi rate to near-zero and trim the deposit rate mildly below zero, then EUR/USD will likely rally. It will take a QE-like program or intervention to have much sustainable impact,” the expert predicts.
“If nothing else, volatility should rise over the remainder of May, a welcome condition for traders.”