Dovish Draghi to Fill Void Left by Cautious ECB

The European Central Bank will meet in Malta today and is expected to leave monetary policy unchanged for another month despite inflation falling back into negative territory and growth remaining subdued. Given that we’re almost a year on from its decision to start buying €60 billion of mostly government bonds each month, there doesn’t seem to be much of an argument to hold off on easing further but that fact has never forced them into action before so it’s unlikely to now.

The recent survey on eurozone bank lending, which found that quantitative easing has eased credit conditions for both companies and households, should really encourage the ECB to up its efforts to get the economy back on track. Unfortunately, it will probably have the opposite impact and solidify the view that QE is working and just needs more time to be reflected in the data.

ECB President Mario Draghi is likely to play his usual role today of talking up the risks to the eurozone economy and highlighting the broad range of policy tools available to the central bank, should it wish to use them. The effect is a kind of verbal stimulus that Draghi has become well known for in that he talks up the potential for more monetary stimulus which can frequently have a similar, albeit smaller, weakening impact on the euro. For example, we could see Draghi talk up the potential for QE to go beyond next September’s initial end date, increase between now and then, or even reopen the door to further rate cuts.

It’s been a slow summer for consumer spending in the UK in much the same way that we saw last summer, but we are expected to see a slight improvement in September with monthly sales rising by 0.4%. The numbers still represent a significant improvement on last year though, up 4.8%, so at this stage it’s nothing to be concerned about.

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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam