A new species has been discovered today in the Governing Council; the optimistic dove. European Central Bank President, Mario Draghi, once again displayed the variety of tones in his plume as he delivered a dovish message, but continuously guided the attention of the listener to the silver linings.
After recent economic developments in the Eurozone, Draghi couldn’t avoid admitting that now “the balance of risks is to the downside”. However, after this statement he continued to stress that what we now observe is news of “lower growth, not of no growth”. Also, he spoke of “continued confidence with increasing caution”, which is an oxymoronic way of say saying that he is still convinced that a positive scenario for the Eurozone economy is more likely than a negative one.
Despite Draghi’s attempt at optimism he can’t prevent the realisation that the ECB’s Asset Purchasing Program ends with a pitiful whimper, not with the glorious bang the ECB may have envisioned.
This is due to the program coming to an end before its goal of an inflation rate close to 2% has been reached, which can illustrate how little influence the ECB may actually have on increasing the inflation, as well how political pressures from for example Germany may have played a role in the premature end of the APP.
The inflation and growth forecasts of the ECB for 2019 and 2020 were adjusted downwards, however, as this was broadly expected it didn’t put markets strongly in motion. Going forward we actually haven’t learned that much during the press conference we didn’t know before, as news about the reinvestments of the ECB balance sheet was postponed to a press release specifically dedicated to this topic after the press conference. As the pricing of the first rate hike of 10 basis points didn’t change much and is still estimated at a 80% probability in December, the single currency eventually kept losses to a minimum.
This euro reaction falls completely in line with what one can expect after a press conference with an optimistic dove.