Having supposedly thrown everything at the deflationary problem at their early March meeting, there is little expectation that the ECB is going to have anything substantial at today’s gathering to present to markets. Instead, we’re likely to get a PR job on the signs that the stimulus policies seen over the past year are having an effect. So far, that’s not really been evident in the inflation numbers or the real economy. The latest credit conditions survey from the ECB showed some signs of improvement, such as a further compression of lending rates and easing in terms and condition on lending. There remains the usual risk of volatility on the currency on ECB days. As with Japan, it’s not behaved in the way that the central bank would have liked, given the swathe of measures announced. In broad trade-weighted terms, the currency is up around 1.8% since the last meeting, with that representing the majority of the appreciation seen so far this year. As yields on bonds become even lower (or negative in many cases) it’s not surprising that QE is not impacting the currency in the same way as before. Furthermore, the effectiveness of policy when yields are already so low is questionable. There has been more talk of so-called ‘helicopter money’ in recent weeks, in other words putting money directly into the hands of households as a way of stimulating the economy. I would not be surprised at all to hear Draghi questioned about that today. But it’s far too unconventional for the ECB to be considering at this point in time and there are naturally barriers in terms of blurring of lines between fiscal and monetary policies.
The ECB meeting dominates the data calendar, with just UK retail sales at 08:30 GMT grabbing the attention. Sterling continues to be in corrective mode, with buyers quickly emerging at the lows after the weaker than expected labour market data yesterday. As I’ve mentioned before, it’s trading more like a risk currency than a safe haven (but it’s never been either) hence the tendency to buy the dips. On the majors, the Aussie is currently stalling above the 0.78 level, whilst the reversal on USDJPY has pushed it back to the 110 level.