Mario Draghi, the world's most important central banker was again on display this past week as the ECB finished its first meeting of 2018 with an interesting twist. While the financial world waited for him to acknowledge the EU was growing fast enough for the ECB to review its own slow and steady pace of monetary policy normalization, the big headline was instead directed at his rebuke of Treasury Secretary Steven Mnuchin.
Weak Dollar Good For Trade
At a news conference upon Mr. Mnuchin's arrival in Davos, Switzerland for the World Economic Summit, he was asked about the dollar. The Treasury Secretary Steven replied that “a weaker dollar is good for us as it relates to trade and opportunities.” and quickly accelerated a decline in greenback that had extended days earlier. These comments were unusual for a U.S. Treasury Secretary in light of the country's history of a strong dollar policy but echoed President's Trump's comment last January when he said the dollar was too strong and actually turned the trend for the dollar around. The dollar index was down around 8% since then and has continued lower after Mnuchin's comments. Since arriving in Davos, the President himself tried to walk back Mnuchin's comments by saying they were "taken out of context" but it hasn't worked as the index broke $89 this morning on the lows.
This development seemed to annoy the head of the ECB as he was his usual back and forth self on EU monetary policy, leaving the possibility of actually increasing bond purchases if there was to be slow down in the post-meeting statement and stressing in the press conference how long rates would be low (hint: a long freakin' time), while simultaneously acknowledging the strength of the European economy. He saved his strongest words for the U.S. Treasury Secretary. Mr. Draghi complained to reporters in Frankfurt that although exchange rate movements were “a fact of nature” some recent volatility was caused by “someone else” (Hint 2: Mr. Steve Mnuchin) whose “use of language...doesn’t reflect the terms of reference that have been agreed.” When hit directly with a question about Mnuchin's comments. Draghi replied, “Several members of the Council expressed concern, and this concern was also in a sense was broader than simply the exchange rate, it was about the overall status of international relations right now,” he said. “If all this were to lead to an unwanted tightening of our monetary policy which is not warranted then we will have to just think about our monetary policy strategy.”
The EUR/USD shot up through the release of the statement and continued higher throughout the press conference rising through 1.2500.
Source: Think or Swim/ TD Ameritrade
Whatever the market believes about the ECB, they certainly believe the Euro should be higher. If the dollar movement cause "unwanted tightening" in European economic conditions, that may reverse, but at least the ECB has someone to blame. U.S. Treasury Secretary Steven Terner Mnuchin Heaven forbid Mario Draghi actually takes a stand on his own economy.