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Draghi Put His Own Imprint on the ECB

Last updated 11/3/2011 10:51 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Mario Draghi took the helm of the ECB with his own distinct style today sending a clear message to the market that he is more concerned with growth rather than price stability in the region and will assume a more accomodative stance than his predecessor Jean Claude Trichet. The ECB surprised the markets by cutting its interest rate by 25bp to 1.25% as Mr. Draghi did not bother to stand on ceremony and wait until next month to make policy changes.

Confirming his reputation as a pragmatist, Mr. Draghi referred to a litany of deteriorating  data points from both survey and hard data reports in the Eurozone that convinced the ECB council that a rate cut was warranted. Mr. Draghi noted that the decision was unanimous and reaffirmed the long standing ECB position that the central bank did not pre-commit to any future actions.

On the issue of Italian bonds Mr. Draghi also reaffirmed the ECB’s commitment to stabilizing the credit market but was very careful to stress that it was “pointless” to believe that monetary policy could provide any long term support for the market putting the onus squarely on the fiscal officials in Italy. In doing so, Mr. Draghi, who is Italian,  may have been trying to express to the market his sense of impartiality when it comes to the issue of Italian debt.

The EUR/USD drifted lower during the ECB press conference, after Mr. Draghi’s dour economic outlook weighed on the pair. However, the unit managed to stabilize in aftermath of the event as Mr. Draghi’s objective  assessment of the economic situation on the ground and cool, professional demeanor reassured investors that he had full control of his position. As we noted earlier, “markets viewed the rate cut move as stimulative for the EZ economy and therefore generally positive for risk.“ If the situation with Greece can stabilize the pair could climb higher on relief rally flows as fears of full meltdown in EZ credit  markets begin to dissipate.       

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.