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The ECB Pause that Refreshed the Euro—New York Summary

Posted by Joseph Trevisani on Feb 6, 2014 5:34:00 PM

Market sentiment going into today's ECB policy meeting was not quite as one-sided as it had been last September 18th for the Fed meeting that did not deliver the taper. There was however widespread expectation that President Mario Draghi would respond to euro zone disinflation with rhetoric if not a specific policy move.

In the event, Mr. Draghi demurred saying only that “We are willing and we are ready to act," but with no act forthcoming the euro climbed 135 points to 1.3619 against the dollar as the ECB President wended his way through the press conference after the bank kept its main-refinance rate at 0.25% and enacted no other policy  changes. The euro closed at 1.3590.

"The reason for today’s decision not to act has really to do with the complexity of the situation that I described and the need to get more information,”said Mr Draghi. He is likely referring to the bank's quarterly economic forecasts which will be published next month as well as further inflation data.

Consumer price inflation in the euro zone unexpectedly slowed to 0.7percent annually in January from 0.8 percent in December, less than half the bank's target of just under 2 percent and as low as it has been since 2009.  In October the same reading contributed to the surprise 25 basis point cut in the refinance rate to 0.25 percent.

The Euro/Yen surged two figures higher with the euro after the ECB press conference climbing from 136.76 to 138.83 and was the main factor propelling the dollar/yen from 101.26 to 102.17. The cross closed at 138.74, Dollar/Yen at 102.09.

The Dollar/Swiss fell from 0.9061 to 0.8968 during the ECB press conference ending at 0.9009.

The Dollar/Canada bucked the overall U.S Dollar trend lower jumping  from 1.1053 to 1.1120 as the December Canadian trade deficit rose unexpectedly to 1.66 billion and Novembers deficit was revised to 1.53 billion from 0.94 billion. Economists had forecast a 0.65 billion gap for December. The trade data was released at 8:30 am ET and coincided with the start of ECB President Draghi's press conference.


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