Draghi Hints About a Rate Cut, Then Offers Strong Words


ECB President Mario Draghi used the words “monitoring very closely” in regards to the economic situation, that has deteriorated. This possible hint of a rate cut in May or June sent the euro plunging down towards the low support line of 1.2750. Draghi also cast a bit of doubt on the hopes for a recovery in H2.

Follow a live blog of the event.


  • Hint of a rate cut soon – “Monitoring very closely in the next weeks” – EUR/USD falls
  • Subdued growth, subdued loan dynamic.
  • Tight credit conditions will weigh on activity
  • Recovery in second half subject to downside risks.
  • Loose monetary here to stay.
  • “We are ready to act” but “we don’t pre-commit”.
  • Initial Cyprus deal – not smart
  • Excahnge rate not a policy target, but taken into account.
  • OMT has helped contain crises and prevented them from becoming existential.
  • 50% of LTRO has been repaid.
  • Cyprus is not a template.
  • No Plan B.

Live Blog

  • 12:15 GMT Press conference begins at 12:30. All times are GMT.
  • 12:15 EUR/USD traded lower during the day, falling below the 1.28 line and partially recovering afterwards.
  • 12:17 Mario Drgahi could provide easier collateral rules or a new program to help banks. You can watch the press conference here.
  • 12:25 At the same time, the US will release weekly jobless claims. A small slide from 357K to 352K is expected.
  • 12:26 It will be interesting to see how the LTRO repayments will proceed given tighter credit conditions.
  • 12:30 US initial jobless claims badly disappoint with a leap to 385K.
  • 12:34 Press conference begins
  • 12:35 Rate unchanged, inflation have further declined as anticipated, price development remains contained, inflation expectations firmly anchored.
  • 12:35 Weak economy activity has extended but recovery expected later on. EUR/USD slides.
  • 12:36 “In the coming weeks, we will monitor very closely” – sign for a rate cut? 
  • 12:36 We will also monitor closely money markets.
  • 12:37 Euro area should recover from higher global demand. Improvement should reach real economy.
  • 12:38 Weaker than expected domestic demand, due to not enough reforms
  • 12:39 Environment of weak economic activity, price stability expected.
  • 12:40 Activity remains subdued, quotes growth and inflation numbers.
  • 12:42 Recovery in H2 subject to downside risks.
  • 12:43 Inflation contained.
  • 12:44 Underlying pace of monetary expansion still subdued
  • 12:45 Questions begin
  • 12:45 Are calls for a rate cut becoming louder? What about SMEs?
  • 12:45 “We had an extensive discussion about the rates … I will give more answers later”.
  • 12:47 EUR/USD dips under 1.2750 but doesn’t make a convincing break just now.
  • 12:48 We cannot replace lack of capital in banks, not compensate lack of action by governments.
  • 12:49 Not all results were encouraging.
  • 12:50 We need to think deeply before we do something feasible, useful and consistent with our mandate.
  • 12:51 Question about Cyprus.
  • 12:52 Weakness extending to countries where fragmentation is not an issue.
  • 12:53 EONIA is already very low, close to zero.
  • 12:54 EUR/USD trading at 1.2760, unable to convincingly break 1.2750 so far.
  • 12:55 On initial Cyprus deal, Draghi says it was “not smart” – an understatement!
  • 12:58 The events in Cyprus have reinforced the commitment to support the euro.
  • 12:58 Thanks to OMT and to positive contagion, we can now cope with serious crises without them becoming existential.
  • 12:59 Target 2 balances continue to decline, 50% of the net amount injected by the LTRO has been repaid
  • 13:00 “Cyprus is not a template” Draghi mentions action in Dutch bank SNS.
  • 13:01 A bail in is not a problem. The problem is the lack of buffers.
  • 13:02 EUR/USD recovering to 1.2770
  • 13:03 The lack of rules is problematic. The commission writes the rules.
  • 13:05 No comment about intervention in Italy but he says that Napolitano called him, and not the other way around.
  • 13:07 Hopes to have the legal framework for the OMT on time.
  • 13:10 What was wrong with Cyprus doesn’t stop being wrong if Cyprus is outside the euro.
  • 13:12 Fiscal multipliers have not been underestimated.
  • 13:13 EUR/USD at 1.2784, recovering.
  • 13:14 Situation at the beginning of 2012 was much worse due to big redemption of bonds. Banks began contracting credit way before then at around mid 2011.
  • 13:15 Loss of confidence, higher uncertainty, fiscal consolidation and credit contraction all weighed on Europe.
  • 13:16 ELA is responsibility of the banks.
  • 13:17 We are not acting politically, only within our mandate.
  • 13:18 ESM to directly recapitalize the banks? Draghi sends reporter to the politicians. “We view positively every measure that cuts the link betwen the sovereigns and the banks”.
  • 13:25 When the banking sector is very big, these countries are at a bigger risk.
  • 13:28 2012 was an exceptional year of advance. We are conisdering both standard and non-standard measures.
  • 13:32 The exchange rate went down, and then it went down. There are several reasons for the movement. There are many factors that move the exchange rate. “I would refer to the G-20 statement, including Japan”.
  • 13:33 Questions about euro exit underestimating the political capital invested in the euro. You would have a hard time asking people like me such questions. The ECB has shown determination – no Plan B.
  • 13:35 Press conference ends. EUR/USD above 1.28.


The precedents set in the bailout for Cyprus are problematic for the euro-zone. The mere thought of taking money out of insured accounts sent shock waves, which are still felt despite the changes afterwards.

The big move from central banks came from Japan early in the day: the BOJ presented a comprehensive program to fight deflation, and the yen reacted with a plunge. USD/JPY rose nearly 300 pips and EUR/JPT was also affected.

EUR/USD live chart:

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About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.


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