Talking Points:
- Germany’s Finance Minister Wolfgang Schaeuble says his country will work with whoever Donald Trump chooses as US Treasury Secretary
- Jens Weidmann, the President of Germany’s Bundesbank, argues that unconventional policy tools should be used with extra care
- But European Central Bank President Mario Draghi hints at further monetary-policy support for the Euro-Zone economy
- Federal Reserve Bank of St. Louis President James Bullard repeats that he is leaning towards supporting a December US rate increase
Further monetary-policy stimulus for the sluggish Euro-Zone economy and a December rate increase in the US both remain likely after a series of speakers on Friday skirted round the key current market issues of the impact on the bloc of the UK’s decision to leave the EU and the election of Donald Trump as the next US President.
Taken together, the remarks look set to add to the downward pressure on the Euro, particularly against the US dollar. The EUR/USD pair was stable on Friday after falling from above 1.11 on November 7 to just over 1.06 at the time of writing.
German Finance Minister Wolfgang Schaeuble said his country will work together with a new US administration, including whoever Trump appoints as Treasury Secretary, noting that “we must respect what they vote for and work with them as well as possible”.
European central bankers, however, concentrated on Euro-Zone monetary policy in comments that did nothing to change the market perception that the European Central Bank is likely to extend its asset-purchase program for six months after March next year, when it is currently due to end.
In comments likely to prevent any long-term recovery by the Euro, European Central Bank President Mario Draghi said “the recovery remains highly reliant on a constellation of financing conditions that, in turn, depend on continued monetary support”. He added: “The ECB will continue to act, as warranted, by using all the instruments available within our mandate to secure a sustained convergence of inflation towards a level below, but close to 2%.”
Read more on the ECB here.
However, Bundesbank President Jens Weidmann – who is also a member of the ECB’s Governing Council and is regarded as more hawkish than Draghi – argued that “unconventional instruments should be used with extra care – even if they are used only temporarily”.
The remarks by Draghi contrasted sharply with comments by Federal Reserve Bank of St. Louis President James Bullard, who is also a voting member of the US rate-setting Federal Open Market Committee. Speaking at the same European banking conference in Frankfurt as Draghi, Bullard repeated earlier comments that he is leaning towards supporting a rate increase next month.
However, he went further, hinting that rates could move higher again next year. “Markets are currently putting a high probability on a December move by the FOMC. I’m leaning towards supporting that,” he said. “I think the question now is more about 2017.”
--- Written by Martin Essex, DailyFX
Contact Martin at martin.essex@ig.com
