'The question: 'Can the European Central Bank become even more dovish?' was answered by a resounding 'yes' this morning after an ECB report revealed the central bank is looking into changing the inflation target into a symmetrical one. At the moment, the inflation target is “below, but close to, 2% over the medium term”– and even this target the ECB has a very hard time to hit. Despite not hitting its current targets, the ECB is raising the bar to tighten its monetary policies to a level not even remotely approached since 2002, when core inflation actually was above the 2% level. Such stringent conditions before monetary tightening is considered means a “lower for much longer” regime, which will keep the euro below long term average values for an extended period.

 

First, this may be right up to the alley of US President Trump who can point to this “shifting of goal posts” as proof the ECB does everything within its power to weaken the euro. This would then confirm Trump’s view the Eurozone is indeed a membership club for currency manipulators, which, in his opinion, will justify tariffs against the bloc.

 

Second, such reports appear to wear the dovish signature of Mario Draghi, which steers the direction in which the monetary policy debates will go coming months. In a sense, this binds the new ECB President Chrisitine Lagarde’s hands as the question asked decisively focuses on reasons that would justify further monetary accommodation. To give a counterexample, a report that shared the ECB is investigating whether the price stability inflation target should be lowered to 1% because the 2% isn’t reached would have Lagarde start with a whole different tone of the future policy discussions.

 

In short, this can be seen as a parting gift of the Draghi area that may influence the discussions on the short run, potentially the policies on the longer run and, for now, definitely seems to weigh on the euro.'