The Single European Currency finished around the middle of the FX pack on Tuesday, up against the USD, little changed against the GBP but down against all three of the ‘Commonwealth Currencies’. EUR/USD opened around 1.2320 and after a very steady session through Asia and the European morning, then took off to a high of 1.2370 before then settling back to 1.2345 after an unusually public spat between ECB Council member Ewald Nowotny and his colleagues. Overnight in Asia and this morning in Europe, the EUR is once more probing Tuesday’s highs.
In very uncontroversial and pretty dull early remarks, Mr Nowotny said, “The normalisation [of
monetary policy] requires a delicate balancing of measures as well as careful sequencing in time,”
saying there were risks to both being too aggressive with the process or starting it too late. As for the
impact of trade tariffs, “The direct effects might be on the exchange rate side but this is difficult to
see or to forecast because today we have so many linkages, we have long production chains...It might
have negative effects on financial stability, but effects on monetary policy are not very clear.”
However, the Austrian central banker then gave an interview to Reuters in which he said that the
ECB’s 2.55 trillion euro ($3.1 trillion) bond-buying program would be wound down by the end of this
year, which would then pave the way for the first rate rise since a fumbled move in 2011. He called on
the ECB to get on with the process to ensure it can take a gradual approach, and to start with the
deposit rate, which has been in negative territory since mid-2014. “I would have no problem with
moving from -0.4 percent to -0.2 percent as a first step and then, as a second step, include the (main
refinancing) policy rate. This is the structure. The exact timing? It’s too early to tell you.”
In a very unusual move after EUR/USD had jumped around half a cent, the ECB - which rarely
comments on statements from individual policymakers - distanced itself from Nowotny’s comments.
“Governor Nowotny’s views are his own. They do not represent the view of the Governing Council,”
an anonymous spokesperson said. ECB Members Nuoy and Hakkarainen are scheduled to speak today
and analysts will be watching to see if they deliberately distance themselves from Mr. Nowotny’s
remarks. The EUR opens in North America today at USD1.2365 and EUR/CAD1.5600.