The Euro Keeps Rallying, as the ECB Sounds Less Concerned About Coronavirus Today
Markets panicked this week, as coronavirus broke out in Europe. We have seen cases in previous weeks, but they were few and under control. Now, the virus has gone out of control in Italy in particular, and it is spreading in other countries in Europe as well.
As a result, the ECB sounded concerned yesterday, calling for more fiscal spending from Eurozone governments, but today they seem a bit more relaxed. ECB members Vasiliauskas and Weidmann made come comments earlier today and they seems less concerned.
Comments by ECB governing council member, Vitas Vasiliauskas
- Doesn’t see anything ECB can do next month to respond to coronavirus
- Need to see first how the virus is affecting the real economy
- The virus is a very important aspect and possible risk
- Outbreak seems more like a supply shock in the beginning
- But now the reaction is ‘very active’, can also expect demand-oriented shocks
- ECB must observe the situation very carefully
- Does not think that the ECB can do something in the March meeting
- Says “we are living in the regime of wait and see”
This very much fits the tune with what Lagarde was trying to communicate yesterday. I think the ECB can be glad the virus outbreak hasn’t quite affected Germany and France that much, but it may be too early to tell for now.
Comments by ECB governing council member, Jens Weidmann
- ECB must not lose sight of exit from loose monetary policy
- Coronavirus effect can’t be measured yet
- Some virus-related risks will materialize in Germany
- An epidemic in Germany would have direct economic consequences
- Current inflation target is understandable, forward-looking, realistic
- Accommodative policy is needed but must not lose sight of exit from loose policy
- No need for immediate monetary action due to coronavirus
- Hard to say if rate cut would have impact on spending
The usual tagline for Weidmann continues despite the threat of the virus outbreak in Europe. Is this possibly a push towards getting German lawmakers to budge though? The Euro turned bullish earlier this week and EUR/USD continues to climb higher. This pair climbed to 1.1050 a while ago, but has pulled back down below 1.10 now.
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