ECB: Any comments on Euro strength to be scrutinised by markets

Excerpt

Some ECB members have touched on the exchange rate in recent communications, suggesting that there’s at least a faction within the Governing Council that is attentive to these developments. French central bank governor Francois Villeroy de Galhau stated last week that the exchange rate will be among the factors guiding ECB policy. In a similarly recent interview with the FT, Austrian central bank governor Martin Kocher stated that ‘if the euro appreciates further and further, at some stage this might create of course a certain necessity to react in terms of monetary policy’.

This echoes similar comments from Vice President de Guindos from last year, who also signalled that the 1.20 level in EUR/USD may be the pain threshold for the bank. While Lagarde will likely be tight-lipped, we think any musings from her on the impact of exchange rate appreciation will be among the key things to watch on Thursday.

Don’t expect any strong rhetoric, but the degree of acknowledgement may give some indication of how important the strong euro issue is. Beyond that, we expect the communications to largely mirror the December meeting.

Lagarde will no doubt emphasise that monetary policy is in ‘a good place’ with investors unlikely to find a lot of novelty in the statement or the press conference. Perhaps the main difference is that there will be no new economic projections this time around – these will be released next month. Steady as she goes, still.