Daily Market Update

ECB agrees with Fed: No Need to tighten. Dollar gains

March 07, 2019

The U.S. Dollar is trading around its strongest levels since mid-November as the European Central Bank established that indeed the economy needs a boost.


At the moment of writing, ECB President Mario Draghi speaking in his press conference made sure to state that there was a unanimous decision to exercise a series of two-year Targeted Longer-Term Refinancing Operations (TLTROs), easing measures that incentivize banks to lend and provide credit to, hopefully, spark economic activity. This return to monetary loosening is strengthening the buck in a significant way.

Clearly, the global economy is lacking momentum and hard data is revealing it. Q4 figures in multiple regions are now signaling contractions that could lead to recession if continued. As long as global markets stay doubtful and officials give reasoning to stay cautious, the greenback will stay afloat and resilient. Meanwhile, Non-farm productivity and Unit Labor Costs in America showed expansion above expectation for the last quarter of 2028. Economic divergence is certainly aiding the dollar currently.


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The Euro is dropping like a stone as ECB’s Draghi continues to explain his reasoning for the decision to start aiding the financial system once more. While there have been previous rounds of TLTROs as part of the comprehensive quantitative easing (QE) program established by the ECB to rebuild confidence in the Euro-bloc and recover from the 2008 crisis.

The TLTROs will start in September as Draghi says that risks to the economic outlook are tilted to the downside. More importantly, the unanimous choice comes as the bank cut the Euro-area’s 2019 growth from 1.7% to just 1.1%.

This comes as no surprise since other individual member nations have decided their forecasts needed to be revised downward. Do not be surprised if perhaps Euro finds a path to recover quickly since there are also items that could still impact the dollar in a negative way, especially if the Employment Situation is not stellar. Also, the ECB just clarified that they are following the footsteps of the Fed by changing their mind on how to approach the current anemic state of economic affairs. Intervention is not doom.


The Pound fell further as it has become clear that Prime Minister Theresa May’s plan to have her Attorney General convince the EU Commission to amend the deal did not work. As the U.K. runs out of options to improve the deal that the EU approved, the chances of a delay are increasing, but this in turn is hurting Sterling based on economic uncertainty over how long businesses can wait for solutions.

Lack of clarity and the pressure of March 29th will give more room for serious drama and certainly violent swings for GBP as this all gets sorted out one way or the other.

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