A sideways look at economics

From his infamous “whatever it takes” speech back in July 2012 to being ‘attacked’ by a protester and doused in confetti back in April 2015, Mario Draghi’s tenure at the helm of the European Central Bank has been eventful to say the least. While his term does not expire until 2019, this week marked his fifth anniversary.

Other policymakers aim to give nothing away in the run up to press conferences, but in the case of Mario Draghi, something entirely different seems to reveal his stance before the event has even started: the colour of his tie. Keen-eyed onlookers often use Mr Draghi’s tie colour as an indicator, potentially garnering deep meaning as to what the underlying tone of the upcoming press conference will be. So does this work?

At press conferences where Mr Draghi wore a blue tie, on average EURUSD fell by 0.3% on the day. Red tie days tended to be more positive, with EURUSD rallying 0.7% on average. When he felt more adventurous and opted for either a purple or green tie, the market impact seemed to be more muted.

However, around May 2014, the ECB’s press officer told the media that Mr Draghi had ‘become aware’ of the considerable interest in his choice of attire and re-iterated that nothing should be read into Mr Draghi’s choice of tie. Has there been a structural break? Does the choice of tie no longer matter?

Around meetings when Draghi was ‘unaware’, EURUSD fell 0.6% on a blue tie, but has only fallen 0.1% since. A red tie still sees an average appreciation of 0.7%, and a purple tie sees EURUSD rise 0.6%. However, any euro bulls should beware the green tie – this is now the biggest signal of a EURUSD fall. So even though Draghi himself is ‘aware’ of #draghitieguesses, there is still some evidence of a pattern. Investors are likely to continue to watch the famous tie for some time to come.