FxWirePro: Will euro look past Draghi’s dovish comments?

Speaking to the European lawmakers in Brussels, the chief of the European Central Bank (ECB) Mario Draghi confirmed a dovish outlook for the monetary policies and improvement in the Eurozone economies. Mr. Draghi told lawmakers that many of the problems that dragged the Eurozone into its deepest-ever financial crisis are now well in the past. He said there were positive economic trends across the Eurozone, with the economy growing for 16 straight quarters, unemployment at its lowest since 2009 and consumer sentiment at a six-year high. While he acknowledged that the downside risks to growth were diminishing further and tail risks have receded measurably, he added that a loose monetary policy is still needed as inflation remains subdued. He stressed that he is firmly convinced that the central bank needs to stick to its easing measures.

Strong dovish comments like these would have caused a downside havoc for the euro in the past but price action suggests that the Euro might have started looking past the ECB comments.  Most of the market participants expect that the extraordinary easing measures adopted by the central banks since the Great Recession of 2008/09 are coming to an end even if the pace might vary. Very few expects the European Central Bank (ECB) to add to its asset purchasing significantly when it ends this year in December.

With €60 billion asset purchasing per month and the interest rate at -0.4 percent, the ECB fears abrupt shaking out of the bond market if it announces that it is going to taper. So, the actions taken by Mr. Draghi may not resembles his comments. The central bank would try to keep comments as dovish as possible while its winds up its easing.

The euro is currently trading at 1.114 against the dollar, down for the fourth consecutive day.