Currency Wars: ECB Hints at Rate Cuts, Trump Slams Draghi in Tweetstorm

-edited

President Trump pointed the finger at ECB president Mario Draghi in a Tweetstorm blast.

Unfair! Unfair!

Unfairly Easier

What the Hell Does This Even Mean?

Also, the statement is in quotes, but Trump is the source.

Currency War Fears

MarketWatch reports ‘Currency war’ fears rise as Trump slams Draghi’s hint at more ECB stimulus

Tweetstorm Trigger

The Wall Street Journal reports ECB Signals Possible Rate Cut Prompting Trump Tweets.

Mr. Draghi said Tuesday that ECB policy makers would consider in the coming weeks how to adapt their policy tools “commensurate to the severity of the risk” to the economic outlook. Options include extending the time frame before the next interest-rate increase, a reduction in the already negative policy rate or restarting bond purchases.

Asked in an interview with ABC News’s George Stephanopoulos about whether criticism of Fed Chairman Jerome Powell could undercut Mr. Powell’s credibility, Mr. Trump said, “Yes, I do. But I’m gonna do it anyway.”

Investors responded favorably to Mr. Draghi’s remarks, sending the euro down by more than half a cent against the dollar, to $1.1187. Yields on 10-year German government bonds fell to a fresh all-time low of minus 0.315% as investors digested the prospect of fresh bond purchases by the ECB. French 10-year yields dropped sharply and hit 0%, their lowest ever.

“The rate-cutting genie is out of the bottle,” said Bart Hordijk, FX market analyst at Monex Europe. “This opens the trapdoor to lower levels” of the euro against the dollar.

ECB Target Interest Rate Already at -0.4%

Interest rates at -0.4% did not help Europe and -1.0% or any other absurd number won't either.

Nonetheless, the ECB is prepared to act.

Draghi Responds

Draghi responded that the ECB Does Not Target its Exchange Rate.

“We have our remit, we have our mandate,” Draghi told an audience at the ECB’s annual forum in Sintra, Portugal, on Tuesday. Our mandate is price stability defined as a rate of inflation which is close to but below 2% over the medium term.”

He iterated that the euro zone’s central bank is “ready to use all the instruments that are necessary to fulfill this mandate.” “And we don’t target the exchange rate,” he said to applause from the crowd.

So what?

The move has the same effect.

Warren in Bed with Trump

Yesterday, I noted Elizabeth Warren in Bed With Trump: Both Want to Sink the Dollar.

I had no idea a currency war Tweetstorm was coming today.

But here we are.

The fact remains, there is no economic benefit to this nonsense. It is always a benefit for the consumer to get more for their money than less.

Sadly, Warren, Trump, the ECB, Bank of Japan, and Bank of China all want the same fool thing: Higher inflation and less for your money.

Race to the Bottom

In the race to the bottom, the ECB is ahead.

  1. Negative interest rates are not only absurd, they damage bank profitability
  2. The Italian Mini-BOT will lead to the breakup of the Eurozone.

Mike "Mish" Shedlock

Comments (25)
No. 1-11
Menaquinone
Menaquinone

Brussels has not removed tariffs on US automobiles. Germany has not cancelled Nordstream II. There will be tariff hell to pay after Brexit. President' Trump's bluster over currency is a facade paving the way for enormous tariffs on EU automobiles. Sanctions against Nordstream financiers and construction companies are likely.

Brussels regulations and red tape have killed the EU golden goose. What was the last creative enterprise or product out of Europe? Negative interest rates cannot help Europe.

davebarnes
davebarnes

Going to Europe in the late Summer for vacation. Selfish me wants the Euro to nosedive.

Casual_Observer
Casual_Observer

Wait until the US economy nosedived because of corporate bond crisis.

caradoc-again
caradoc-again

In summary, pick your poison, options include;

A) Makes no difference - "extending the time frame before the next interest-rate increase"

B) Screw the banks and insurance co's even further - "a reduction in the already negative policy rate"

C) Encourage even more zombification leading to even bigger problems when the piper stops playing - "restarting bond purchases."

Am I too cynical, sceptical, jaded?

caradoc-again
caradoc-again

Facebook crypto could help usurp Euro in places. FB have more credibility than the ECB. Can't stand FB but could be a Trojan horse.

Once upon a time smugglers were state revenue enemy #1, soon it could be crypto issuers.