ECB Quick Analysis: Doves 3, Hawks 1 - Draghi Drags The EUR/USD Down

The European Central Bank delivered quite a few changes and triggered quite a bit of volatility, yet not in favor of the common currency.

The monetary hawks score one goal: the ECB announced the tapering of bond buying in its June decision, defying expectations that the decision will wait until July. 

However, the doves scored three critical goals:

1) The tapering is not as quick as some had expected: There were some prospects that the ECB would taper to €15 billion in October, €10 billion in November, and €5 billion in December. The result is not a gradual tapering but a reduction to €15 billion for each of these months in the last quarter of 2018.

2) The end of tapering is conditional: Starting in 2019, the ECB will no longer buy bonds, but only if things develop as expected. The Frankfurt-based institution has left the door open to change its mind if inflation does not develop as expected. This is a cautious approach.

3) No hikes at least until the Summer of 2019: The pledge to hold rates unchanged at least until one year from now is the most dovish move. The conditionality goes only in one way: to keep rates lower for longer. There was no open the door to hike earlier if inflation accelerates.

All in all, ECB President Mario Draghi, which is a known dove, won over his rivals in an impressive way. The resulting downfall of the euro will help him achieve higher inflation that the Bank is committed to. 

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Here is how the pair reacted. It looks like a convincing 3:1 victory for Dovish Draghi.