In Stunning Development, Draghi Slams US Dollar Jawboning

Blink and you missed what was the most "remarkable development" in today ECB press conference.

Toward the end of Draghi's Q&A, the head of the ECB took a direct swipe at recent US dollar jawboning, accusing Mnuchin, Ross, and essentially the entire Trump administration of verbally manipulating the USD, for not "complying" with the "agreed terms" which have led to euro gains due to comments from "someone else."

  • DRAGHI: SOMEONE ELSE'S FX TALK DOESN'T COMPLY WITH AGREED TERMS
  • DRAGHI: EURO GAINED ALSO DUE TO COMMENTS FROM `SOMEONE ELSE

One wonders what "agreed terms" of currency manipulation Draghi was referring to, but in any event reading between the lines of Draghi's traditional passive-aggressive moapery emerges an unprecedented attack by one former Goldman banker - Draghi - on another former Goldman banker - Mnuchin.

Or, as Citi said, it is "fairly remarkable for a central banker of Draghi's standing to speak out like this to criticize another bloc's foreign exchange policies or practices."

What Draghi is essentially stating is that the recent surge in EUR is not down to fundamentals but down to the excessive dollar selling that has emerged since US officials indicated that they were supportive of a lower dollar, for trade reasons.

We hinted at this jokingly last night when we tweeted that "Mnuchin may be more effective than QE1."

However, a bigger point brought up is what this renewed currency warfare could mean for the Federal Reserve in 2018, when a lower dollar will boost inflation even more than expected, forcing the FOMC to be more hawkish, and hike even faster, resulting in a risk asset crash.

Or, as we summarized it:

Things may be getting exciting once again.