Germany Warns ECB About Keeping Expansionary For too Long

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.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza