Draghi disappoints markets by failing to hint at further stimulus

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9 September 2016


The European Central Bank (ECB) fell short of expectations yesterday by opting to keep its monetary policy unchanged and failing to provide any clear indication that further economic stimulus could be on the way later in the year.

he Governing Council left both its main refinancing and deposit rate unchanged at 0% and -0.4% respectively on Thursday, while keeping its quantitative easing programme unaltered at 80 billion Euros a month, as expected. There was, in fact, no change whatsoever in the ECB’s statement from its previous meeting in July. Policymakers opted to not extend the timeframe of the asset purchasing programme beyond the existing March 2017 timeframe, although there remains scope for extension “if necessary”.

President Mario Draghi’s press conference was also fairly low key, with little in the way of any clear hints that further stimulus could be in the pipeline. Despite the lack of any immediate action from the ECB, we think that the poor economic performance in the Eurozone will force the central bank’s hand in the coming months. We expect the QE program to be extended by six months no later than the December meeting, which should contribute to recommencing the Euro’s downward path against most major currencies.

The Euro suffered from a very volatile trading session and, despite early gains, ended the session along with Sterling lower against the US Dollar. Another set of healthy jobless claims figures added to the generally positive outlook for the US labour market following yesterday’s record high job openings.

In Japan, the Yen weakened sharply on Thursday after Bank of Japan deputy Governor Hiroshi Nakaso hinted that further economic stimulus could be on the way. Nakaso claimed adjustments in policy would be made if necessary, and didn’t rule out deepening negative rates ahead of the central bank’s meeting in two weeks’ time.

Major Currencies in detail:


Sterling fell for the second straight session against the US Dollar yesterday, ending 0.35% lower despite a lack of announcements in the UK.

The latest housing data from Halifax showed that house price growth in the UK slowed in the three months to August, a development largely attributed to uncertainty following the Brexit vote. House price growth slowed from 8.4% to 6.9% according to the monthly survey.

Recently appointed Chancellor Philip Hammond also spoke yesterday, claiming that an increase in fiscal spending could be on the cards at the Autumn statement in November.

This morning’s trade balance data from the ONS is expected to show a narrowing in the deficit when released at 9:30am this morning. Tuesday’s inflation figures will be the next major economic announcement in the UK.


The Euro suffered a very choppy trading session yesterday, rallying to a two week high against the US Dollar following Draghi’s press conference before trailing off in the afternoon to end 0.1% lower.

Yesterday’s ECB announcement proved a lot less eventful than many had anticipated. Draghi reiterated his view that the central bank’s ultra-loose policy was working effectively, instead blaming Brexit uncertainty for the recent sluggish growth in the Eurozone. He also claimed that the prospect of extending the QE programme beyond March next year was not even discussed by rate-setters.

German trade balance figures this morning will be the only release in an otherwise quiet end to the week in the Eurozone today. Next week looks set to be a busy one in Europe with inflation, business confidence and industrial production data all set to be released.


Greenback rallied by 0.2% against its major peers on Thursday, well supported by another strong set of jobless claims data.

Jobless claims out of the US economy yesterday continued to point to a firming in labour market conditions. Claims fell by a further 4,000 last week to a seasonally adjusted 259,000, its lowest level since the week ending 16 July. Jobless claims have hovered around a four decade low in the past few months and, combined with solid job creation, low unemployment and high job openings, suggest that the US labour market is in good shape for the second post-financial crisis interest rate hike.

With no major economic announcements in the US today, attention will likely be on events elsewhere.

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