The battle of words between Germany and the European Central Bank (ECB) is heating up once again and is managing to affect the exchange rate of the euro zone’s single currency.
ECB President Mario Draghi said Thursday morning that its current monetary policy stance is adequate and there is no need to start tightening. The euro moved lower against the dollar on his remarks. The currency had been trading slightly up on the day, but fell after Draghi’s comments, hitting a three-week low of $1.0629.
But, Bundesbank President Jens Weidmann, asked later on Thursday for an unwinding of stimulus. He told a conference in Germany that the ECB should be careful to avoid its policies making more harm than good. “I could absolutely envisage a less expansionary policy,” he said.
“Given that EONIA futures (Euro OverNight Index Average, which is an average of all overnight unsecured lending transactions in Europe) earlier this week had completely unwound their March spike (on the view the ECB could tighten before ending PSPP (bond buying program)) the balance of risks suggests something hawkish could be found in the minutes or Weidmann’s speech today, which could lift the EUR. We have slight bias in EUR/$ to 1.0700 perhaps 1.0740 today,” ING said in a note on Thursday morning.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.