Mario Draghi & Janet Yellen brace for December policy decisions

NEW YORK: Janet Yellen and Mario Draghi will end the year shaping each other's decision-making. That's what some economists are saying a day after European Central Bank President Draghi all-but committed to fresh stimulus for the euro-area in December. The same month was already a focal point for investors debating whether Federal Reserve Chair Yellen would raise the US benchmark for the first time since 2006. The upshot is that the final month of the year, traditionally a time for winding down and vacations, will be the scene for two of the biggest policy decisions of 2015, with repercussions for currencies, stocks and bonds around the world. The outcome will either be the long-anticipated split in transatlantic policy or a united extension of easy money .

How the euro trades against the dollar in the coming weeks is a key factor for investors trying to gauge the outcome.Europe's shared currency tumbled to a two-month low on Thursday after Draghi's stimulus signal.

“There's this game of currency tennis between the Fed and the ECB and it will continue to play out longer,“ said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. As Kounis sees it, the Fed's decision to delay increasing rates in September pushed the dollar down against the euro, threatening European inflation by making the bloc's exports more expensive and its imports cheaper. That forced Draghi to say he's considering even looser monetary policy when ECB officials next convene on December 3. If Draghi acts, weakening the euro, then the likelihood of a stronger dollar would probably influence the Fed's thinking when its policy makers gather two weeks later, said Kounis.

“The signal from the ECB makes a December Fed rate hike less likely by pushing the dollar back up against the euro and tightening US financial condi tions,“ said Krishna Guha, vice president at Evercore ISI in Washington.

By contrast, if global equity markets continue their rally on the back of ECB action then that could “give the Fed a bit of a smokescreen to launch its first rate hike,“ said Steve Barrow, head of Group-of-10 strategy at Standard Bank Group in London.

That would mark a new era, with two of the world's largest central banks pulling in opposite directions. “We know that monetary trends between the US and euro zone have been diverging for a while, but polar-opposite moves in the same month would surely take divergence to a new level -and perhaps eurodollar to a new low,“ Barrow said.