As Euro Strengthens, All Ears Are On Verbiage Of ECB President Mario Draghi

Thursday, February 07, 2013 07:49
As Euro Strengthens, All Ears Are On Verbiage Of ECB President Mario Draghi

Tags: euro | European zone | world economy

The European Central Bank (ECB) will address concerns of politicians that the increasing strength of the euro could threaten the nascent European recovery.
The ECB has stood on the sidelines as the euro has gained strength ever since ECB president Mario Draghi successfully defended it in August of 2012.

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The ECB traditionally uses words to indicate its position on currency valuation. Investors will be glued to Draghi’s words during his statement on Thursday during the monthly press conference.
Phrases like competitive devaluation or currency war would indicate concern by the ECB that the euro is growing too strong.
Political pressure seems to be building for the ECB to take some type of action to stem the euro’s rise.
Each 10% of appreciation by the euro takes away .7% of annual economic growth. Continued strength in the euro could open the possibility of another interest rate cut.
The ECB announced that the ECB would leave interest rates on hold at .75%. Draghi cited improved financial market conditions as the reason for not moving on rates last month.
Another rate cut could have revived tensions with Germany over concern that Europe not be drawn into a race to the bottom in response to the currency war considered to be started by Japan.
Verbal intervention to stem the euro’s rise will become more likely if the advance continues.

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