Draghi tries to make its own path on policy tighteningDespite the solid amount of bets on the hawkish outcome of ECB October meeting, where a decision should be made to cut money supply, Draghi does it all to play down the event.
At the conference in Frankfurt, the president of ECB once again recalled positive aspects of cheap liquidity, saying that low rates create a window of opportunity for European governments to carry out reforms that will "pay in full" once rates will have risen.
"The ECB survey shows that there is no convincing evidence of the benefits of high rates in the reform process. The opposite situation could be true - soft credit conditions allow carrying out reforms that improve the macroeconomic environment"
Speaking about the advantages of low rates, it is difficult to imagine that Draghi simultaneously implies the need to increase them. It's just not logical. The head of the ECB remains committed to the accommodative policy and the odds of October meeting falling short of market hopes are only rising. The pair EURUSD continued a moderate decline, while dollar grew against main peers as the circle of candidates for next Fed head narrowed, and the number of hawks in it only grows. It is obvious that quitting post crisis era will untie new governor’s hands and allow experimenting, in particular, speeding up the rate hike process.
The dollar index advanced to 93.50 level and as it was noted before has solid prospects for further growth.
Investors keep selling bonds in the US, as the inflation front really looks threatening for fixed income markets. According to a Reuters poll, 82% of investors expect an increase in yield on the fixed market in the next 12 months, while 85% believe that the market is overbought. The yield on the 2-year US Treasury securities rose to its maximum since November 2008, as rumors about the appointment of a new candidate for the Fed are becoming clearer. The Chinese Government's focus on market reforms, but with the preservation of state intervention in the economy what promises good prospects for global inflation.
British unemployment did not change in August staying at the level of 4.3%. The positive news was the growth of wages to 2.2% compared to the previous year and contrary to the forecast of 2.1%. September inflation tallied with expectations, a recent report showed, but still above wage growth, so the policy tightening by the Bank of England remains an urgent topic of discussion. One of the regulator officials noted that the pressure on inflation due to the weak pound will soon come to naught. Against the backdrop of strengthening of the dollar, GBPUSD pair may drop to 1.30 level in the next few weeks, as the British currency is lacking growth catalysts at the moment.
Arthur Idiatulin
