ECB is clearly drowning the single European currency
It is easier to see a speck in your friend’s eye, than to discover a log in your own. When in early 2017, Donald Trump and Steve Mnuchin rivalled each other in enumerating the benefits of weak dollar, Mario Draghi strongly criticized them. Say, the foreign exchange rate is not a topic for discussions of that kind. Finally, the guys from the White House started speaking up for each other, revealing their duplicity. And the market doesn’t like two-faced people. It’s hard to know, what face to punch in.
Despite the quarrels, the goal was achieved: dollar was down, and it looks like the ECB decided to repeat the hat trick. Verbal interventions were pouring like a flood. The central bank doesn’t mind what to cover euro with: gloss or spots. Provided it looks beautiful. Ewald Nowotny started the talks about EUR/USD strong bearish potential. Say, the Fed is generously hiking the rate, and the ECB, on the contrary, isn’t willing to change it until at least September, 2019. The divergence in monetary policy should drive euro to the south. Next, more and more. Francois Villeroy de Galhau remembered how uncertainty around the Brexit had dropped the pound rate down to the lowest levels for at least four decades. Earlier, the Governor of the Bank of France declared trade wars to result in uncertainty for the Eurozone economy. Parallels are obvious: the ECB is driving a euro-hunt. Anyway, judging by EUR/USD rebound up from its 11-month low: a real drive, when both he desires, and she desires. And when you’re out in the woods with guns, it is just a kind of shooting game!
At its meeting in June, the European central bank decided to reduce the assets buyout from €30 to €15 bn per month, from September till December. The regulator seem to still wonder what microwave mode it should turn on not to get the hamsters to burst right away. Going on the experiments. There might be some sense in the market talks that the decline in the Eurozone GDP directly results from quitting the monetary stimulus. In fact, it is not so. The currency block’s economy, just like a lab rat, pretends to be dead to avoid new rate experiments.
Mario Draghi did like so much the euro response to the statement about retaining the rate at the current level through late 2019, that he decided to repeat it in the Portuguese Sintra, adding that the ECB’s plan to quit QE in 2018 could also change. The Governing Council’s hawk Jens Weidmann explained it by the central bank’s wish to buy time. Verbal pressure on EUR/USD is extremely strong. Anyway, we haven’t yet listened to Sabine Lautenschläger. She didn’t study to walk and talk when she was a child to stay still and silent after she gets married.
In spite of all those who wish to drown it, the single European currency, like a rubber ball, has floated to the surface. Euro is unwilling to be chalked off. It can nothing but sink or swim. EUR/USD bulls are not in the slightest discouraged by the fact that the Fed is hiking its rate aggressively, proceeding with the balance sheet normalization; and the ECB is discussing euro weakness, feeding the liquidity to the Eurozone economy within QE. Euro has learnt that money can’t buy happiness; but if there’s nothing else, you’d better take the money.
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