ECB: no policy change and minimal comment on EUR strength - Westpac

Analysts at Westpac noted that the ECB’s Press Conference was again the focus of market attention (Policy and initial statement unchanged).

Key Quotes:

"As universally expected, the ECB left policy and their accompanying statement unchanged. How Draghi and the Governing Council addressed the spate of stronger regional data, especially surveys, and the rise of EUR, as USD slides, was always going to be the real interest for markets." 

"After an effective mechanical running through of the broader statement for the Press, the Q&A responses were where the real interest for markets lay. Draghi’s main points were:

• The ECB see “very few chances at all for a rate increase this year”. However, his tone expressed frustration about having to return to the topic several times
• After stating ECB members’ concerns over US policy, Draghi finally mentioned: EUR strength as being partly due to the (strong) regional economy and, rather pointedly, “due to comments from someone else”
• Despite positive economic developments (regionally and globally) in recent months, there were no major developments to alter their perceptions since October (EUR/USD was 1.18)
• There are no sign of any inflationary uptrend
• However, tightness is appearing in the labour market with signs of wages lifting in Euro-area
• Surprise that markets were raising concerns that guidance might occur early
• Questioned whether shifts in (assets and) perceptions were driven by internal growth or exogenous factors (as in “someone else”)

Market reactions:

"Both EUR and European rates resumed their rise during the ECB’s Press conference as a clear impression of a better economic performance built together with an initial avoidance of any comment on EUR strength. When Draghi finally broke on EUR and stated that its strength reflected regional activity, but also, very pointedly, the strength was due to the comments of “someone else”, an obvious reference to US Treasury Secretary Mnuchin.

EUR/USD continues its uptrend and pushed above 1.2500. BOBL and Bund yields rose to test key levels of -6bps and +62bps respectively."