ECB: More dovish pricing reflects less focus on the growth outlook – Danske Bank

Pernille Bomholdt Henneberg, Chief Analyst at Danske Bank suggests that the recent reversal of the aggressive pricing that followed Draghi’s hawkish twist in the Sintra speech reflects both the euro appreciation, which should dampen expectations of the ECB being very hawkish, and the latest communication from Draghi, which backtracked a bit on the hawkish stance expressed in the Sintra speech.

Key Quotes

“Draghi’s Sintra speech, 27 June 2017: ‘As the economy continues to recover, a constant policy stance will become more accommodative and the central bank can accompany the recovery by adjusting the parameters of its policy instruments – not in order to tighten the policy stance but to keep it broadly unchanged.’

“Draghi on ECB meeting, 20 July 2017: ‘In the presence of this growth recovery, if we are to experience an unwanted tightening of financing conditions that may jeopardise the convergence in the medium term of inflation to our objectives, then we will have to act and we will have to use the APP bias and other measures as well. That’s why this discussion we’re going to have in the fall is multi-faceted.”

“Draghi’s Jackson Hole speech, 25 August 2017: ‘ECB is not there yet on inflation, must remain on guard.’