Elephant in the Room:
The European Central Bank published its latest monetary policy decision today, with the European monetary authority leaving interest rates unchanged. The Bank held the main refinancing rate at 0% with the deposit rate, the reward for holding funds at the bank overnight, at -0.40. The ultra-accommodative monetary policy stance is nothing new, with markets understanding the intentions of arch-dove President Draghi for a long time. Guidance was held to leave markets anticipating the first interest rate hike, the first of Draghi’s 8-year presidency, after the summer of 2019. The Euro gained significant value, following a shaky morning session, throughout the early afternoon despite the continued dovish tilt to monetary policy simply because the Bank did not place weight on the risk that Italy brings to the single currency and Union growth forecasts. Despite numerous press conference questions enticing Draghi to condemn Italy’s budget plan, the President held firm suggesting that the spending plan was a matter of fiscal governance and of little to no consequence to the broad-based growth and monetary progress within the Eurozone. With a lack of positive Brexit news today, the Pound continued to stall, succumbing to the pressure of the US Dollar as cable began to test 1.28. Following an appalling day for the Rand yesterday, South Africa’s currency retraced slightly to close around one quarter of one percent stronger on the day on a trade weighted basis.
Discussion and Analysis by Charles Porter