Investing.com – European Central Bank (ECB) Mario Draghi’s speech at the Jackson Hole Economic Symposium on Friday may be the focal point of attention at the event.
As market players expect Fed chair Janet Yellen to largely repeat what they already know and, to the contrary, are hungry for clues on when the euro zone monetary authority plans to forge ahead with tapering off its monthly purchase program, they will likely keep a close eye on Draghi’s remarks on the euro to measure the hawkishness/dovishness of the central bank chief.
Draghi will be returning to the gathering of central bankers, finance ministers, policymakers, academics and economists for the first time in three years.
In 2014 he hinted at quantitative easing and, around €2 trillion ($2.4 trillion) later, markets are anxious to hear specifics on plans for the purchase program, currently scheduled to expire at the end of this year when the central bank will have to decide whether to extend it, let it run out or begin reducing the amount of purchases.
Anticipation for further details from Draghi’s appearance at 3:00PM ET (19:00GMT) has waned as sources recently indicated that the ECB president would stick to the symposium topic, “Fostering a Dynamic Global Economy”, and preferred to watch developments in the lead up to an earlier hint that clues could be given in the “autumn”.
For Friday’s speech, experts from Danske Bank said they “expect him to deliver a dovish message and to not give any new communication on the issue of tapering of asset purchases.”
Goldman Sachs agreed, citing minutes from the last ECB meeting and the recent Reuters’ sources article, but these experts admitted that “there are still some expectations for a more substantial policy update.”
Markets may sift through remarks on euro to speculate on tapering timing
Indeed, as CMC Markets chief economist Michael Hewson pointed out: “Whether Draghi likes it or not, the ECB will have to cut back on stimulus simply because the outstanding bonds available to buy is diminishing rapidly, and the continued expansion in economic activity and factory growth points to a fairly resilient recovery in Europe.”
In that context, the “some” that Goldman referred to are looking for further clarity on the timing.
Yet, analysts widely agree that further news at this time is unlikely given a recent batch of soft inflation data and strength seen in the euro, above and beyond the insistence from “sources” that Draghi would like to avoid getting ahead of the autumn meetings.
On Wednesday, Draghi avoided any mention of timing, leaving markets grasping at straws.
“If the Draghi speech in Lindau (on Wednesday) is any appetizer for Jackson Hole, there is no need for ECB watchers to cancel any Friday evening plans,” ING analyst Carsten Brzeski proclaimed.
Of course, as markets are well aware, there is always room for a surprise.
“Expect (Draghi) to be upbeat on the economy, but the hawkish/dovishness indicator might be swayed one way or the other on how much attention the euro gets in his remarks,” Deutsche Bank strategist Jim Reid warned.
Barclays was also cautious in its weekly outlook. “We think the risk for the euro around the event is biased to the downside, and that euro bulls might be disappointed by a lack of meaningful hints on ECB monetary policy normalization,” these experts warned.
As of 8:16AM ET (12:16GMT), EUR/USD inched up 0.05% at 1.1806.