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D-Day for Draghi

D-Day for Draghi

So, today is the first of 2 days that the market has been waiting for; the ECB rate decision is released at 12:45 UK time prior to Mario Draghi’s press conference at 1.30. Then tomorrow we have the US Non-farm payroll data.

Both of these announcements are of extreme importance, not just to their domestic currencies, EUR and USD, but globally. One could argue that the US and Europe are facing similar problems with tough job markets and high deflationary risks but whilst the US is trying to counter these issues with tapering and looking at the end of this process, the Eurozone seems to be behind the curve and is only talking about maybe applying these options.

So what’s going to happen today? The consensus is that the ECB will keep rates on hold but Mario Draghi will have to action something to try to boost economic recovery as the deflationary risk is still very evident and the rising EURUSD exchange rate is resulting in further pressure. So, if there’s no rate cut, what else does Draghi have on his agenda? He still needs to look at inflation, as the 0.5% current level is way below expectations. Could he turn to quantitative easing? Unlikely as even though it is something that has been used in Japan, US and the UK, his hands are tied as the ECB is banned from monetary financing of governments.

Further pressure was applied on Draghi by Christine Lagarde the IMF Managing Director who commented on the need for more monetary easing by the ECB in order to counter the risk of “lowflation”.

GBP is this morning still doing well against the Euro and USD but of course we are expecting volatility this afternoon

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