The Euro slipped simultaneously against the US Dollar as the ECB delivered their monthly meeting Press conference. During which Interest rates remained unchanged, whilst the ECB’s asset purchase program was tweaked rather than reduced.
What did Draghi announce?
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Although very few had anticipated Euro interest rates would have been increased this month, markets had arguably expected more decisive action in order to reduce the asset purchase program. Instead, markets were served a mild asset purchasing reduction which will be implemented as of January, essentially the ECB will reduce their program from €60 Billion to €30 Billion as of January, however, it also announced that the program would run at the very least until the end of 2019.
Elaborating on his decision Marion Draghi stated:
This is not tapering, it’s just a down-size.
Continuing the ECB President said:
The decision today is for an open-ended program … it’s not going to stop suddenly. There is still a large amount of uncertainty.
Reasons governing the ECB’s decision
The strong Euro to US Dollar has appreciated dramatically over the year touching highs of 1.2035 in September. The ECB ideally want to push this down further following the announcement, this, in turn, should help the Eurozone’s struggling CPI inflation figures which remain weaker than required, currently sitting at 1.5% against an ideal of 2%.
Inflation as covered above currently poses a puzzle for the ECB; Labour markets, Spending and exports all show upside, however, Inflation remains covering this Draghi said:
If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the asset purchase program in terms of size and/or duration.
Draghi Therefore not discounting the option to increase or return to the ECB’s current policy.
Next Eurozone rate hike?
With the Extension and reduction of the quantitative easing will surely provoke a delay in the next Eurozone interest rate. Many experts believe that the ECB will firstly watch other policymakers raise their rates before acting, believing this months’ actions could see Eurozone interest rates remain at record lows into 2019.
Euro to US Dollar reaction to the ECB’s conference
As Markets interpreted and digested Mario Draghi’s patient and persistent stance, Draghi got his wish and dutifully the EUR/USD weakened. Euro to US Dollar moved from 1.1804 to 1.1753 and continued to fall until market close on Friday evening. Currently, Euro to US Dollar sits at 1.1608, following Catalonia’s decision to declare independence as it almost certainly continues to fall when markets open again on Monday.
The week ahead for the Euro
The Euro has a raft of data releases this week, these include Retail Sales data from Germany. Spanish Flash CPI and GDP data and overall Core and Flash CPI for the Eurozone.
Investors will also have a keen eye of the manner in which things unfold in Barcelona where a number of demonstrations are being helped by both the supporters of Catalonian independence and the capital Madrid.