Weekend Economists Mark D Day, 2014 June 6-8, 2014

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24. Draghi’s Resilient Euro Recalls Greenspan Conundrum

http://www.bloomberg.com/news/2014-06-06/draghi-s-resilient-euro-recalls-greenspan-conundrum.html

Then-U.S. Federal Reserve Chairman Alan Greenspan called it a conundrum a decade ago when he boosted interest rates only to see bond yields fall. European Central Bank President Mario Draghi is facing a similar puzzle with the euro.

Rather than retreat from the 18-nation euro, traders scooped it up yesterday after Draghi unveiled unprecedented monetary-stimulus measures including negative deposit rates that should tend to weaken a currency. Traders speculate the moves are likely to boost the region’s bond and stock markets, bolstering their appeal and the currency needed to buy them.

“The magnitude and multi-faceted nature of the stimulus suggests that the ECB’s main goal here is to take a chainsaw to the euro, but the markets are just laughing at Draghi’s slasher mask,” Guy LeBas, the chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said in a note to clients yesterday after the ECB’s decision.

Draghi is counting on a lower euro to help ward off deflation and aid exporters. He stepped up his war of words against the currency’s strength in recent months, culminating in May 8 comments that gains in the euro, which that day reached its highest level in 2 1/2 years against the dollar, were hurting policy makers’ efforts to spur inflation.