LONDON (Reuters) - Closer consideration of the implications of Thursday’s comments by European Central Bank President Mario Draghi may lead some to question if the euro’s subsequent rally against the dollar is sustainable.
Already there is talk in the foreign exchange market of reasonable sellers of euros against the greenback in both the $1.3290-00 and $1.3320-40 areas.
Euro demand was triggered by Draghi’s assertion that as the ECB’s decision to leave its benchmark rate unchanged was unanimous “it implies there was no request to have a rate cut”.
While that may underpin the euro temporarily, it may not last because it is hard to see how the single currency can hold its value for any period of time while very large numbers of working-age people in the euro zone periphery remain unemployed.
Tuesday’s Eurostat data showed a jobless rate for the euro zone of 11.8 percent in November, but within that, Spanish unemployment is some 25 percent.
Of course, Germany does not need any ECB benchmark interest rate cut with its 2.1 percent inflation [ID:nL5E9C27OC], above the ECB’s 2 percent euro zone target, but a jobless rate of 6.9 percent, only just above the lowest level seen in the post-reunification era. [ID:nL5E9C31WT]
Perhaps that explains the ECB’s emphasis on the continued use of non-standard measures, possibly seeing those as a better way to target specific areas of the euro zone.
“We are not thinking about an exit now,” from such non-standard measures, Draghi said.
The ECB recognizes the jobless problem, with Draghi calling it a “a very important factor in our assessment of price stability”, but that does not necessarily mean they have any solutions to it.
“There is very little mobility in this unemployment”, Draghi said, adding “monetary policy cannot do much about that.”
That is quite an admission and not necessarily comforting for those looking for the euro to rise much further.
However, it should hardly be a surprise in a bloc where language remains a barrier to labor mobility.
The euro’s rise after Thursday’s ECB’s policy meeting is of absolutely no use to euro zone member countries plagued with high unemployment, as it eats into their export competitiveness.
Traders who went long of euros after Thursday’s comments from Draghi might well come to ask themselves: why buy euros when the euro zone isn’t working?
( Neal Kimberley is an FX market analyst for Reuters. The opinions expressed are his own)
Editing by Nigel Stephenson