Whatever it takes
- ECB chief pledges to save the euro
- Investors dump dollars and yen
Appropriately for the opening day of the great sporting festival whose rings we dare not display, the global spirit is positive. An internet news word-search this morning for "delight" returned 51,800 results while "fury" picked up only 47,400. The distinction is even more conspicuous between optimistic (96,000) and pessimistic (16,900). There's still an appreciable amount of fury and pessimism around, but by and large the mood is upbeat.
Could it all be in anticipation of the athletic endeavours in England's capital, or might an Italian chap from Frankfurt have had something to do with it? European Central Bank President Mario Draghi addressed the Global Investment Conference in London yesterday. He got off to a nervous start when he said "I wouldn't use the word 'sell'," and he sounded doubtful when he likened the euro to a bumble bee "because it shouldn't fly but instead it does". But then he got into his stride. "The euro is much, much stronger, the euro area is much, much stronger than people acknowledge today."
He would say that of course but the crux of his presentation, the bit that did more for the euro than anything the politicians have achieved in the last 12 months, came in the second half of the speech: "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough."
Such is the credibility of Euroland's central banker that investors did believe him. They hurried off to buy not only euros but just about anything that moved: pounds, commodity-related currencies, equities, oil, gold and even Spanish government bonds. To buy them they used US dollars and Japanese yen. Sterling and the euro jumped nearly two cents higher against the dollar. The pound strengthened by one and a half yen. Sterling/euro is practically unchanged on the day.
Sig. Draghi must now put his money where his mouth is. There was mor
e than an element of jest in the comment here yesterday that investors were expecting all sorts of wonderful things from the ECB's Governing Council meeting next Thursday. It is no longer a joke. The ECB president has said he will do "whatever it takes". If he does, he will have earned the Nobel prize for economics. If he doesn't, the euro will find itself in all sorts of trouble.
But that's next week. For today the focus will be on Euroland inflation and US gross domestic product. The eurozone inflation number will not matter much but after Wednesday's shock from British GDP investors will be steeling themselves for disappointment by the US figure.
And tonight, of course, comes the grand opening ceremony of the McHeinekenfest. Bookies are offering a million-to-one on Fred Goodwin or Bob Diamond lighting the flame, with Ronald McDonald the odds-on favourite. Enjoy the moment this evening and have a good weekend.