Draghi provides policy guidance
Yesterday’s ECB policy meeting brought clarity to a market that had been living in hope rather than expectation of a normalization of Eurozone Monetary Policy.
The reaction to Mario Draghi’s news conference was to push the common currency to two-year highs against an ailing dollar. It reached 1.1655 a rise of 1.2% on the day and now looks to have a solid platform to test 1.1850 and 1.2000.
Draghi commented that the ECB would start to discuss the removal of the Asset Purchase Scheme in the Autumn which led traders to believe that withdrawal would start early in the new year.
Traders have been “hanging on every word” that Sr. Draghi utters as his no nonsense approach in delivering on what he says brings a lack of ambiguity not common among central bankers. He has been clear over his mandate which is to create stable monetary policy for the entire Eurozone. A difficult goal that is now being achieved. His comments that a rate hike would bring equality perfectly illustrates his grasp of the issues facing slower growing economies of the region.
As predicted, the common currency is now close to 0.9000 against Sterling as Brexit concerns re-emerge to drive the pound lower.
Hard Brexit talk hits Sterling
The regular press briefing from the main Brexit negotiators will be a monthly point of interest for the next two years as the EU and U.K. grapple over the “terms of divorce”
It has now emerged that negotiators will meet face to face for just four days a month. This means that Brexit has eighty (now seventy-six) days to settle the matter.
Yesterday’s press conference was full of the usual niceties but the issues remain. The bill for Brexit is nowhere near agreement and the fate of EU and U.K. residents living in each other’s countries remains unclear. There is a lack of clarity in the U.K.’s position. David Davis the Brexit Minister is an advocate of the “no deal is better than a bad deal” mantra. This was backed up yesterday by Trade Minister Liam Fox who commented that the U.K. could get by without a trades deal with the EU.
The market, however, doesn’t agree and sent to pound lower reaching within touching distance of 0.9000.
Although Brexit is being blamed for “all that ails the U.K”, the very real prospect of a “no deal” scenario is slowly permeating trader’s thoughts.
Dollar lower as U.S. faces headwinds similar to the U.K
Issues over trade deals, a leader rapidly losing credibility and a slowing economy. No, this is not the U.K., it is the U.S.
The stunning difference in the paths of the Eurozone and the U.S. over the first seven months of 2017 is most graphically illustrated by the performance of the currencies.
Donald Trump, following his inauguration in January arrived with “all guns blazing”. He has obviously found Governing a totally different experience from Campaigning. During his campaign he could bluster, make promises and disrespect his opponents without consequence. This is not, however, the case for a President. His bluster is now seen as masking a lack of basic policy, his disrespect for opponents has led to calls for impeachment and his promises now have a hollow ring.
He can see the way in which his actions are viewed internationally as the dollar index has lost close to 6% during his Presidency so far. This will, probably, be glossed over as a good thing since it will lower the cost of U.S. exports. However imported inflation is never a good thing.
The dollar fell to a two year low against the Euro yesterday reaching 1.1655. It gained a little versus Sterling as Brexit concerns hit the pound, breaking 1.3000 to reach 1.2978.
