ECB’s Mario Draghi to speak on Thursday, there will be much hype on focus on this but ultimately everyone needs to relax and think clearly for a while. The over-hyped noise coming from the media over the euro being “too high ” for trade is becoming increasingly boring.
Draghi is not going to budge or lower himself or the EU to getting involved in currency wars or further stimulus at the behest of markets.
The ECB values stability. Much as it wants cohesion, unity, shared values and growth it is largely made up of fairly conservative thinking that prefers stability over boom and bust. Nearly all the measures put in place to calm the EU waters have been just that “pacifers.”
Draghi’s last one was a masterclass and he has single handedly dragged down the yields on peripheral govt bonds such as Spain and Italy to a more comfortable level. It was such a good move that he hasnt had to actually do anything yet, the mere threat of him doing something has been enough to move the yields lower. But its a temporary measure designed to calm the debt markets to give EU member states a chance to stand on their own two feet.
In recent weeks the EU has made some noises showing their distaste for the actions of their global counterparts (namely Japan the US and to a lesser extent the UK) for actively engaging in measures to devalue their currency.
So this meeting on Thursday is unlikely to see Draghi throw the cat amongst the pigeons. Believe it or not the euro on a long term view is quite a stable currency. Over its ten years in official circulation its actually in the middle of its range.
Plenty of headlines suggesting the demise of an export led recovery due to a high euro. The currency would still have to rally another 10% or therabouts from current levels to be considered in the high end of its 10 year trading so I for one will not worry yet.
Also dont forget that global trade can be quite fickle sometimes in certain industries, but in this day and age where most large players capable of having an impact on a regions GDP have very sophisticated treasury departmenrs capable of anticipating, hedging or preventing the impacts of a higher/lower currency on their business model.
Moving one’s supply chain overnight is not often possible nor desired and who is to say they will achieve more value for money, similar quality and establish relationships built on trust and mutual co-operation than they already have.
Big business has seen this before and unlikely to panic and even more unlikely to not have forseen or planned for such an eventuality.
I dont remember many shouting from the rooftops how great it was when the euro was down in the dumps last summer for the EU and how the regions exporters were been given a huge boost etc.
Overall the rising currency does not help us but for Draghi to fight fire with fire at this stage would be pointless. Nothing is going to stop the US from printing money till they reach their goals and the move by Japan is doomed to failure by its very own design ( will go into detail another time) so for now I admire Draghi et al, perching on the moral high ground for a while and trying to ride it out.
He who laughs last usually laughs the best ………