On Thursday, a meeting of the European Central Bank will take place – an event that will have a significant impact on world markets, primarily foreign exchange.
Earlier, the ECB noted its concern about the appreciation of the national currency, but since then, the euro has weakened slightly, and the dollar, on the contrary, has strengthened.
In February, the euro weakened against the dollar by 1.8% after rising more than 6% in the previous three months.
In this regard, the regulator can generally exclude the mention of the exchange rate, and concentrate on plans for future monetary policy. Recall that the European Central Bank announced plans to curtail incentive programs amid a revitalizing economy and accelerating inflation.
The currency issue here is far from the last place, because if the active phase of stimulus folding begins, the euro will accelerate, for various reasons. Firstly, due to speculative buying of the European currency, and secondly, investors will close positions in the framework of the carry trade.
But this is not all, the growth of the euro will affect the inflation rate in the eurozone, which will call into question the very fact of curtailing incentives. In general, apparently, the head of the ECB Mario Draghi really wants to begin to get out of the incentives, but there are certain points that do not give him confidence.
In this regard, it is worth paying attention to the tone of the chairman’s statements. If he begins to draw optimistic prospects for the European economy, then the end of incentives is just around the corner.
By the way, ECB economists this time will prepare quarterly forecasts for the economy, in which the ECB’s mood will be reflected.
Together, the other day, Bloomberg cited reasons to refrain from changing rhetoric at a meeting of the board of governors on March 8.
US President Donald Trump’s decision to impose duties on steel and aluminum imports has heightened concerns about a global trade war. Populists and the right are leading the elections in Italy, raising questions about the political prospects of one of the largest and most debt-burdened economies in the eurozone. Meanwhile, the economic recovery in the block may slow down.
A series of negative news ahead of the ECB meeting on March 8 reinforces Draghi's arguments and may undermine the confidence of those who insisted on a change in wording in the statement on monetary policy.
"We will remain in a period that will last another 12 months – plus or minus – when, if there is any shock, whether political or economic, the ECB will be inclined towards a dove," said Rupert Watson, head of distribution of assets at Mercer Ltd. in London. "Draghi makes it very clear that monetary incentives will continue until they are completely no longer needed."
At a meeting in January, ECB officials noted steady economic growth in the eurozone, but at the same time pointed to downward risks associated with geopolitical uncertainty and, in particular, with an increase in protectionism.