USD is acting more like an injured EM commodity currency with political risk typically witnesses in developing countries, not a safe haven.
ECB dovishness only reinforces the notion of a central bank behind the curve with yield suppression reversal pressure mounting until the data begin to reinforce the jawboning.
The types of existential threats which hampered the euro currency during the European debt crisis have largely receded for the time being.
Real interest rates are deeply negative in much of the Eurozone due to the combination of interest rate repression by the ECB’s bond buying program plus above-target inflation.
The politics of trade protectionism, nationalism, and anti-immigration are the match which will ignite dormant inflationary gasses bubbling underneath the surface after years of short-sighted monetary policy experiments.
The Eurozone Consumer Price Index registered an increase of 1.8% year-over-year in January versus December’s reading of 1.1%. This means the ECB’s inflation target mandate of “close but below 2%” has effectively been satisfied at least a year earlier than intended. Next comes a series of goal post moving exercises. Policy makers and central bankers in Europe desire continued stimulus pumping to help limp past the banking crisis in Italy, the ongoing debt crisis in Greece, and significant political risk posed by elections in France, Germany, and the Netherlands. Expect central planners in Europe to disregard the steepening inflation trend for as long as possible. Public discourse will gravitate toward new arguments downplaying headline CPI. These will include shifting focus to core CPI, blaming […]
Mario Draghi is one of the better communicators in modern central banking. Everything he conveyed during the ECB’s 19th of January press conference was intentional. Each time he was presented with questions about whether the ECB should consider winding down its bond buying program faster in light of strengthening economic and inflation data he repeatedly stated, “it wasn’t discussed.” The last thing the native Italian central bank chief wants is a market eager to front run an accelerated QE taper, causing an unstable spike in Eurozone bond yields and in the value of the euro. Any tiny crumb of hope tossed to the hawks risks massive market repercussions similar to the Bernanke-inspired taper tantrum of 2013. Maintaining ultra loose monetary policy risks a rubber band snap back toward tightening […]