What chance a direct shot from the ECB? Little or none seems to be the answer... I wrote on Monday about the ECB's options for expanding its balance sheet but skimmed over the idea of direct FX intervention on the presumption it just wasn't going to happen and the ECB would push via less obvious channels. As I was (justifiably) rebuked, the aim here is to make quick amends. The ECB has intervened directly in the FX markets before in a short space at the end of 2000, each time in order to strengthen a weak euro. As Tracy wrote a while back: Overall, we can conclude from this that the ECB tends to intervene only rarely, and so far only to strengthen the euro when it was at or close to record lows. The intervention has tended to be relatively short-lived, intended as a signal designed to focus market attention on the possibility of a move the other way in a currency, and has been sterilised within the ECB's monetary operations. What chance another intervention to take the currency down? There are no significant legal barriers to such a move but the political barriers are high and it is worth keeping in mind that a coordinated intervention with, say, the Fed and the BoJ would be the most effective option. Fat chance of that right now. Switzerland's ex-interventionist Phillipp Hildebrand may have gotten away with it, but direct intervention in FX markets by the ECB would be a different matter. The G7 did just promise to be extra nice after all (updated with G7 confusion) and we're in the middle of some serious global currency war rhetoric with no easy consensus within the eurozone about how to move. Geoffrey Kendrick of Nomura argued that the probability of the ECB intervening is basically zero but if they did it would be via the trade weighted euro rather than a specific pair like euro-dollar or euro-yen. Makes sense. Citi's Valentin Marinov made the point that even were it happen, there would have to be a period of weakening inflation and even sustained deflation threat before the ECB moves: Needless to say, the ECB will have to exhaust other tradition measures like lowering rates, before considering outright FX intervention. Even in this case, however, I think ECB intervention will be difficult and less likely if recent history is anything to go by. Barclay's Julian Callow made a similar point, arguing that: While it is legally possible for the ECB to act unilaterally from finance ministers, in practice it is unlikely, since it would be a serious breach of the relationship and so would erode trust in the euro. In reality then, rather than expecting unilateral intervention, we'd argue again that it's better to think of this in wider terms - of domestic objectives and central banks switching from inflation stability to financial stability and edging towards state financing (be that a good or bad thing). Related links: No such thing as a global currency war - FT Hildebrand History, role and functions - ECB The Draghi Rorschach test - FT Alphaville A quick guide to ECB intervention - FT Alphaville Currency Wars Are Evil - Merk Investments