* Reuters poll points to rates on hold until mid-2014
* Euro strength in focus as Hollande calls for FX policy
* Draghi to face grilling over Monte Paschi scandal
By Paul Carrel
FRANKFURT, Feb 7 Mario Draghi faces a grilling
over the European Central Bank's sensitivity to the euro's sharp
rise and his connection to an Italian banking scandal on
Thursday, at a monthly meeting when the ECB is almost certain to
hold interest rates unchanged.
Investors will seek to gauge how much further the euro must
rise before its strength forces the ECB to express concern, or
even reverse course and contemplate a rate cut - a scenario that
shows next-to-no sign of materialising on Thursday.
The euro has appreciated to a 14-month peak against
the dollar this year, though it slipped on Wednesday, with
traders becoming cautious in the event that Draghi expresses
concern about the currency's strength.
The ECB's policymakers meet after French President Francois
Hollande said on Tuesday the euro zone must develop an exchange
rate policy to protect the currency from "irrational movements".
Erkki Liikanen, an ECB Governing Council member, later
dismissed any prospect of the bank pursuing such a policy,
saying "we have no foreign exchange target" - a line ECB chief
Draghi is likely to take at his 1330 GMT news conference.
"The market will want to hear stronger words on the foreign
exchange front to stop the upwards trend that's in place but we
doubt this will happen," said Nomura economist Nick Matthews.
"I think he will focus more the comments around the exchange
rate on the G20."
At his news conference last month, Draghi read out a G20
statement on exchange rates. The G20 group of economic powers
holds a mid-February meeting and France said on Wednesday it
would raise concerns about the euro's strength then and at talks
among euro zone finance ministers next Monday.
At Thursday's news conference, Draghi can also expect to be
asked how much he knew about the derivatives scandal at Siena's
Monte Paschi bank, and what he did about it when he
headed Italy's central bank from 2006 to 2011.
Italy's third largest bank has been at the centre of a
financial and political storm as a result of facing losses of
about 1 billion euros from a series of derivatives and
structured finance trades.
Draghi's news conference offers reporters their first chance
to quiz him directly on the Monte Paschi scandal since his role
came into focus late last month.
Draghi faced criticism then after former Italian economy
minister Giulio Tremonti said it was "stupefying" that in his
role as supervisor of Italy's banking system Draghi failed to
discover or prevent loss-making derivatives trades at the bank.
Monetary policy should prove easier for Draghi to handle.
None of the 75 economists surveyed in a Reuters poll last
week forecast a cut in rates from their record low of 0.75
percent on Thursday. The poll suggested the ECB would not change
its rates until at least July 2014.
A batch of indicators cited by Draghi at his Jan. 10 news
conference show the economic distortions of the euro zone debt
crisis are starting to correct themselves, with the data flow
positive over the last month.
One of the indicators shows the ECB's balance sheet
shrinking after banks jumped at the chance late last month to
repay early 137 billion euros in long-term loans they took from
the central bank.
This market-driven unwinding of ECB crisis funding measures
is in stark contrast to the expansionary policies being pursued
in the United States and Japan.