In forex trading, euro-watchers are eyeing this week’s meeting of the European Central Bank (ECB) on Thursday, April 21st.

The ECB kicks of a triple-bill of major central bank meetings over the next week that will also see the Federal Reserve and Bank of Japan in action on April 27th and 28th respectively.

State of Play

 

At its March 10th meeting, the ECB delivered a lot more than was expected, but the Draghi touch didn’t last too long as the euro has since risen to its strongest level in over a year versus the US dollar.

Last time out, the bank cut its deposit rate further into negative territory to -0.4% and upped the scale and pace of its monthly asset purchases.

Consensus bets say the ECB won’t make any changes to monetary policy at this meeting but investors are looking for any hints of dovishness from chief Mario Draghi.

A Bloomberg survey of analysts shows a majority think the ECB will do more, but that this is not likely to happen until at least June, or even September.

Inflation remains on the floor and the recovery in Europe is feeble at best, heaping pressure on Draghi and co to do more. Increasingly, though, there are serious questions being asked about the extent to which central bank policy can achieve much more.

Draghi has said that “inflation in the euro area is likely to display slightly negative rates in the coming months before picking up later in 2016”. The ECB may want to see how its latest policy measures play out over the coming months before taking out the big guns again.

The problem for the ECB and other central banks is that the further they go, the more markets question what’s left in the tank.

Forex markets have been unforgiving, with the euro’s rally making it harder for inflation to pick up. Draghi will likely reiterate that the exchange rate is not a policy target, although he may find a way to strike a dovish note.

What Officials Are Saying

 

Speaking in Washington last week, Draghi warned of the clouds around the economic outlook for the Eurozone and reiterated that the ECB will do whatever it takes to pursue its price stability mandate. But at 2%, the inflation target seems an awful long way away.

Stoking bets the ECB is on the cusp of going even further, Draghi even suggested that ‘helicopter money’ –distributing cash directly to citizens – is an interesting, if as yet unexamined, policy tool.

Top ECB officials have pushed back, with the bank’s chief economist, Peter Praet, saying that helicopter money is not even on the table for the ECB. This was echoed by vice-president Victor Constancio.

German Pressure

 

Backpedalling on even vague talk of helicopter money is the result of some serious political pressure coming from Germany.

Finance minister Wolfgang Schaeuble has gone on the offensive, blaming the rise of the right wing in Germany on the super-loose monetary policy of the ECB.

Jens Weidman, the head of the Bundesbank, has rallied to the defence of Draghi and the ECB but deep divisions remain and he has expressed alarm at the concept of helicopter money and said even the current measures go too far.