Draghi chaired the latest European central bank meeting in Frankfurt this week. Markets weren’t anticipating many surprises with markets following the previous direction on eurozone interest rates and the monetary policy. Pound-Euro rates can experience volatility during Draghi’s ECB speeches and this time no different.
Monetary policy remains unchanged
In recent months the European central bank has advised market makers of its plan to gradually reduce it’s quantitative easing program and there was no change of direction in this month’s speech. The European central bank remains on target to conclude it’s asset purchasing program before the end of 2018. The program has been in place for around three years has seen €.255 trillion poured into the economy in order to underpin the eurozone’s economic growth.
Although the latest ECB press conference appeared routine Governor Draghi spoke more conclusively on existing strategy. During the ECB press conference Draghi confirmed that whilst the ECB could still indeed extend the asset purchasing program, he also shed little light on the possibility or flexibility of larger asset purchases which was interpreted a clear indication that the banks aim is conclude its asset purchasing plan by the end of the year.
Mario Draghi’s take on Trump’s steel and aluminium tariffs
Although only really lightly touched upon Draghi cited a few of the risks to the eurozone economy. One of which was the rise of protectionism. Though it would only appear that Trump’s proposed tariff increases would moderately affect the Eurozone economy fears of retaliation from other nations could cause currency volatility and threaten the relative global stability.
Commenting directly on Trump’s tariff plans Draghi said:
“If you put tariffs against (those) who are your allies, one wonders who the enemies are.”
Eurozone economic indicators
Growth in the eurozone has been extremely encouraging and has surpassed the ECB’s expectations. The ECB anticipate recently revised up growth in 2018 and it is expected to reach 2.4 % rather than 2.3%. Inflation remains stubborn however with very few indications that it will rise.
“The outlook for growth confirms our confidence that inflation will converge toward our inflation aim of below, but close to, 2 percent,” Draghi said. “At the same time, measures of underlying inflation remain subdued and have yet to show convincing signs of a sustained upward trend.”
The eurozone’s unemployment has dropped significantly and therefore should assist with medium-term inflation. Currently, eurozone unemployment sits at 8.6% with this month’s figures demonstrating the zones lowest unemployment level in 9 years.
Pound-Euro lifted by ECB comments
This month has seen the pound suffer dramatically from Brexit derived weakness, this has seen the currency tumble to a month low of 1.1161. However, this week has seen support for Pound-Euros rates with better than estimated economic data in the form of UK services data which reached 54.5 v a target of 53.3 demonstrating a pickup.
The ECB’s admission on inflation, its openness to continuing if not increasing their asset purchasing program providing a helpful boost for Pound-Euro with the pair rising from 1.1172 to 1.1224. The upward Pound-Euro trend has continued in the final trading days of this week with the currency pair closing at 1.1255.
Euro-Dollar slips following ECB press conference
The Euro also weekend against the dollar following the ECB rate decision and accompanying press conference. Whilst the Euro-Dollar currency pair traded higher initially a large correction was seen as Draghi dispelled the possibility of increasing the ECB asset purchasing plan. This saw the Euro-Dollar drop from 1.2428 to 1.2351 with the losses continuing in further trading sessions. The Euro did manage to make some gains following the US unemployment rate and weak wage growth the Euro-Dollar pair closed the week at 1.2308.