There may have been no hints at tapering in September in today’s ECB statement or in Mario Draghi’s press conference but traders certainly found reason to drive the euro higher, something the ECB President was clearly trying to avoid.
I don’t think Draghi could have possibly adopted a more dovish stance at the press conference without suggesting that tapering will not happen later this year. Rather than discuss the possibility of tapering, Draghi was determined to avoid laying the foundations for such a move and instead insist that asset purchases could rise or be extended, a clear attempt to avoid the taper tantrum that the Federal Reserve was forced to contend with four years ago.
What we learned from today’s meeting though was that the ECB probably doesn’t have anything to worry about. The market is already working off the assumption that the ECB will gradually phase out bond buying, with the program likely ending by the end of next year, possibly even the third quarter. This was made clear when the euro rallied despite the repeated insistence from Draghi that tapering wasn’t discussed and further analysis will be done in the Autumn, in other words when the ECB next meets in September and has access to the latest macro-economic projections.
Perhaps it’s time for the ECB to focus less on the intraday movements in the single currency and more on being transparent on its intentions because as it is, they’re fooling nobody and the market reaction today suggests they’re suffering credibility damage along the way.
None of this is to say that traders believe the ECB is on a pre-set course. The Fed wasn’t either despite it’s clear intentions to phase out its QE program and other central banks won’t be when they begin normalising monetary policy. Changes in the data could force the ECB to change course but it seems that the central bank is more concerned with managing the currency than guiding traders.