ECB's executive board member Coeure with a scheduled speech 9 Sept
- will remain more accommodative for longer compared to past demand shocks
- confidence and stimulus of mon pol are likely to offset, at least in part, the disinflationary effects of a stronger ccy
- compelling international evidence that non-standard policy measures have been successful
- exogenous shocks to fx rate if persistent can lead to unwarranted tightening of financial conditions with undesirable consequences for inflation
- euro strength may also have less impact on growth than after the great financial crisis
- recent volatility in FX rate represents a source of uncertainty which requires montoring
Euro pairs lower on the headline/comments.
The negative relationship between the real interest rate gap and economic activity as posited by Wicksell back in 1898 is a mainstay of modern central banking. This relationship has not been lost with the advent of unconventional monetary policy measures. By easing market-based financial conditions, and by putting downward pressure on the real interest rate that banks charge to borrowers, central banks can stimulate aggregate demand, even when short-term interest rates approach the effective lower bound.
The validity of this relationship is also crucial for assessing the price effects of monetary policy-induced movements of the exchange rate. With policy being effective in boosting growth, any disinflationary effect of a stronger currency arising from expectations of a tighter future monetary policy stance might be mitigated, or offset, by the ensuing improvement in the economic outlook. However, exogenous shocks to the exchange rate, if persistent, can lead to an unwarranted tightening of financial conditions with undesirable consequences for the inflation outlook.
EURUSD down to 1.1996 and EURGBP 0.9098 helping to underpin GBPUSD again.
EURJPY falls cushioned by USDJPY rising to 108.61
Should the EURUSD retreat gather momentum through 1.1980 then the large option expiries at 1.1930 will definitely be in focus/range.
Full speech, entitled "The transmission of the ECB's monetary policy in standard and non-standard times" from Coeure here.