Draghi boosts the Euro with less dovish comments

Enrique Díaz-Álvarez24/Sep/2015Currency Updates

The Euro strengthened substantially against its major peers yesterday, clawing back some of its losses from earlier in the week after President of the European Central Bank Mario Draghi struck a slightly less dovish tone than the markets had been expecting. Draghi claimed that the central bank needed more time to assess whether it should be boosting its large scale quantitative easing programme, a measure that in our view would weaken the Euro.

The main event in the US economy today will be a speech from Federal Reserve Chair Janet Yellen, her first since her monetary policy press conference last week following the FOMC’s decision to keep interest rates unchanged. Yellen will be speaking in Massachusetts on inflation dynamics and monetary policy after markets close in the UK at 10pm BST. Any hawkish clues regarding interest rates going up in the US this year is, of course, likely to send the Dollar higher.


Yesterday proved to be another day with few economic announcements in the UK economy. Sterling was driven substantially lower, 1.1% down against the Euro, following remarks on Eurozone QE, while ending 0.6% lower versus the US Dollar.

Bank of England policymaker, Ben Broadbent, claimed that UK pay growth was on the rise, and due to strengthen over the coming months. Broadbent also claimed that a weakening in UK productivity may not be a sign of something inherently wrong with the economy, but could instead be due to more subtle changes in the jobs market.

Another day with no major economic releases in the UK means that Sterling volatility will likely be dependent on announcements elsewhere today. Traders in the UK may also already have one eye on next week’s revised growth figures.


The Euro rose by 0.75% against the US Dollar yesterday following the comments from Draghi.

Speaking in Brussels yesterday afternoon, Mario Draghi claimed that, while the bank is ready to increase its quantitative easing programme if required, it needs to see more evidence of a slowdown in emerging markets, a firming of the single currency and another fall in commodity prices that would provide a further drag on the Euro-area level of inflation. The ECB acknowledges the more negative outlook for the Eurozone, and explicitly refers to the “stronger Euro” as a direct cause. A very mild bounce in the common currency is enough to worry the ECB. Clearly, it regards a weaker Euro as highly desirable. This validates our view that the trend for the Euro continues to be downward and that the ECB will react to any sustained appreciation with further QE.

Earlier, the Eurozone flash PMI’s, a good early indication for overall economic growth, mostly disappointed expectations. Service sector growth dipped this month, down from a reading of 54.4 in August to 54.0, with expansion in the German services industry particularly disappointing. Moreover, manufacturing growth also slowed from 52.3 to 52.0, in line with expectations.

Today, the European Central Bank will be announcing the latest round of its targeted LTRO. This will follow consumer confidence and business climate indices in Germany.


The US Dollar dipped marginally against its major peers, down 0.2% following yesterday’s unexpectedly dovish commentary from the ECB.

Speaking in the US yesterday afternoon, Federal Reserve member Dennis Lockhart continued to talk up the chances of a rate hike in the US. Lockhart claimed that worries about the state of the global economy had become exaggerated, and were given too much weight over positive factors in the domestic economy, such as robust growth and healthy consumption levels. Given Chinese demand only accounts for a very small fraction of overall US GDP, he stated that the spill over of a slowdown in the country was likely to be small.

Earlier, manufacturing growth in the US remained at its two year low. The flash index remained at 53.0 according to Markit, with the sector fighting an uphill battle due to a stronger Dollar and the slowdown in global demand.

Today will see a string of economic announcements across the pond, before Yellen’s speech. Initial jobless claims will be in focus, as will durable goods orders and new homes sales in the early afternoon.


Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.