ECB Has No 'Smoking Gun' To Act On Rates To Stop The Euro Rise - Deutsche Bank

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"The smoking gun is a demonstration that what happened for instance on the exchange rate front would have an effective impact on soft data, on the PMIs, and on the data flow that would usually drive the ECB decision. I think the ECB is putting itself in a situation where they need to finetune their communications very often. So, last month was very positive which created a little bit of overshooting of the market especially this mention by Draghi that the exchange rate was inline with the long term average which can be seen as we're relax and we ain't really concerned about this. Then they had to finetune the communication at the last meeting which they did magnificently. This time, they added the exchange rate in the monetary policy discussion. It is a small move actually. All it means is that if it persists, we will have to take this into account and this would probably postpone the normal pace of monetary normalization in the euro area. It doesn't necessarily mean cutting rates. The problem for the ECB is how to deliver this sort of things if the data flow continues to improve because any decent model of exports will tell you that the exchange rate is important but what is more important is final demand. So, if we have an acceleration of final demand, we are probably going to see that exports orders continue to firm up and it would be very complicated to justify a change in monetary policy simply because the exchange rate is edging higher."

Gilles Moec, co-chief European economist at Deutsche Bank (Source: Bloomberg TV)

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