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26th August 2014
Why Draghi’s Jackson Hole Speech Means a Weaker Euro…

In 2012, Mario Draghi uttered three words which dramatically changed the trajectory of the euro.  With the single currency in free fall (trading at about 1.20 against the dollar), Draghi announced he would do “whatever it takes” to save the euro.  This announcement proved to be the catalyst to drive the euro back up towards the 1.40 level – a remarkable change of fortune for a currency which for many was in (literally) terminal decline.

 

Draghi’s comments on Friday, during the annual Jackson Hole gathering of the masters of the monetary policy universe, may not have been nearly as pithy as his 2012 pronouncement – but they may well prove equally as significant. 

 

In an unscripted remark concerning the issue of low inflation in the euro zone, Draghi stated:

 

“…if this period of low inflation were to last for a prolonged period of time, the risk to...



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18th August 2014
Carney’s mixed messages. The bottom line: no rate hike until next year

Carney’s Mansion House speech in June sent sterling to a pre-crisis high and signaled an earlier than expected rate rise in Q4 2014. As has become traditional, there was an abundance of mixed messages in Carney’s speech. On one hand the economic recovery is on track and has exceeded previous growth expectations, on the other hand concerns in the labour market imply wider spare capacity in the economy. However, with central banks, it’s not the data that matters, it’s the choice of data interpretation by the committee that moves the markets. Navigating through the speech, we have outlined three key take aways and their implications for sterling.

 

 

1         Downsizing growth and concern over wages

 

“Pay growth has been remarkably weak, even as unemployment has fallen rapidly.”

Mark Carney, Press Conference 13th August 2014

 

Despite the optimistic projection of unemployment falling below 6% by the end of...



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11th August 2014
Eurozone – increasing the downside risk

On the surface of it, the recent ECB press conference last Thursday didn’t reveal anything new. The rates have remained unchanged and will remain low for an extended period of time, the commitment to use unconventional instruments to tackle the risk of deflation is still there... . However, two significant matters were mentioned that have substantially increased the potential downside risk in the Eurozone economy (but not necessarily for the euro).

 

 1.       The “good” and the “bad” countries

 

Mario Draghi was straightforward in pointing a finger at the trouble-makers and dividing the Eurozone between the countries that did implement the structural reforms “the good ones” and the ones that didn’t “the bad ones”. The absence of labour market reforms and excessive regulation of business activities were the root cause of Italy’s return to recession. Draghi emphasised that the lack of these reforms is the key reason why all...



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