Christopher Vecchio, Currency Analyst at DailyFX, comments:
“The European Central Bank’s (ECB) patience with the region’s lacklustre recovery may be running out, if one is to believe the rhetoric deployed by President Mario Draghi at the April press conference. Although the ECB held its main refinancing rate on hold at 0.25%, a record low, it was clear that the downturn in economic data over the past several weeks, highlighted by the headline March CPI figure coming in at +0.5% y/y, a four-plus year low (and far beneath the ECB’s medium target of +2%) has changed the game.
“There were several tweaks in ECB President Mario Draghi’s tone on Thursday that suggested a more dovish consensus is forming among the Governing Council Members. It was made clear that the council voted unanimously to explore the use of unconventional monetary policy measures, even as President Draghi noted that all the conventional tools hadn’t yet been deployed. Negative interest rates and a round of the ECB’s own version of quantitative easing (QE) was discussed.
“The implication that the ECB stands ready to act in the face of a deflating price environment and soft economic horizon inherently suggests an air of credibility to the idea that the ECB could implement non-standard accommodative policy measures. In meetings past, any such commentary that implied the desire for a weaker Euro or hope for continued improvement in growth was met with skepticism by the market; the Euro had developed the reputation for bouncing back after the past several meetings, including the November rate cut (an important low for EURUSD formed that day).
“Now that it’s been made clear by the ECB that it recognizes jawboning is losing gravitas – threats of action but no such specific action (see: the ECB’s success with bringing down PIIGS sovereign bond yields without having to operate within the scope of the OMT, not even once) – the path forward will require more explicit details of what measures the ECB might take going forward.”