It is not only about golf for central bankers this weekend

At the start of the week ECB officials were out talking EURUSD lower and for good reasons. EURUSD dropped pretty much earlier this year from expectations to a QE program but after the program started, the pair recovered rather substantially. While this is how markets work short-term, it was not what the ECB particularly liked.

As of tonight and until Saturday, the ECB holds its Forum of Central Banking in Sintra, outside Lisbon in Portugal and in between rounds of golf at Penha Longa Resort, they will also discuss “Inflation and Unemployment in Europe”, which is the theme for the Forum. Their top team will be present as will many other prominent central bankers be.

The ECB’s measures have been credited for the more positive stream of Euro area data seen over the last weeks. Governing Council Members always claimed the measures would work. The problem is that EURUSD look to have reacted more positively to even the smallest sign of improvements – despite Greece hanging over the currency as an everyday threat.

Central bankers do not talk about having “handicaps” – at least not outside the golf course – but it is a concern for them should the Euro find good support from Euro area improvements too early, when the measures were set out to take the currency the other way.

That is why they talked as they did at the start of this week and that is why they likely will do a bit of the same this weekend. There will be no new measures introduced but emphasis on sticking to the announced length of the QE program and smaller specifications like intensifying purchases in normal periods to compensate for lack of market debt during holiday weeks are likely enough to put some extended pressure on the currency.

Adding to the “handicap” for ECB council members are developments in the US. They will for sure question Stanley Fischer - who will be present in Portugal this weekend - about what on earth is happening to the US economy. The help they felt they had from the Fed hiking rates and the USD going stronger, might not be such an obvious scenario short-term.


Janet Yellen will not be in Portugal. I don’t know whether she is a golfer but she is scheduled to talk at a luncheon at Rhode Island on Friday on the theme: “U.S. Economic Outlook”. Stanley Fischer might refer to her for clues to what is happening and markets will for sure be listening.

The FOMC Minutes gave no new clues to when a rate hike might come and developments in the US economy - as highlighted through some data this month - are of some concern to US GDP growth for the 2nd quarter. The data I follow and the trend lines I draw from them are not very optimistic. I question whether there will be a rate hike at all this year.

Fed and FOMC officials might be a bit trapped at moment. Three months ago we were all of the opinion – they inclusive – that the question was only whether it would be June or September when the first rate hike would be announced. Few questioned whether it would come at all. Now that might not be such an obvious outcome and US central bankers might feel the situation rather uncomfortable. Did they taper QE3 too early? Did they stop it too early – or even more surprisingly – should they introduce a QE4? Rest assure – a QE4 will not be introduced this weekend – but we might get some stronger emphasis on that a rate hike is not imminent and possibly not fixed in the calendar of 2015.

It could be an end of the week when Euro area central bankers talk the Euro down while US central bankers talk the USD down and the rest of us will have to figure out where EURUSD should go from those conflicting signals.

I might opt for a round of golf instead.