As the head of the European central banks opted to leave interest rates untouched as many had expected, attention quickly switched to the possibility of tapering. Draghi confirmed key decisions would be made on the possibility of tapering in October. This admission triggered GBP/EUR to lose nearly 0.4% in the UK trading window a loss which continued in the US session.
Mario Draghi effectively confirming that the European Central Banks will begin the creating the roadmap and initiate the process of winding down the European central banks asset purchase program in October. When quizzed on conversation relating to this month’s Interest Rate decision and conversations on Tapering Draghi described the ECB’s plans as
very preliminary
With the ECB head also confirming that Interest rate could remain at the low rates for an extended period. Essentially dismissing the possibility of an interest rate rise this year at the very least.
Draghi on the Strong Euro
During his rate decision speech, the subject of the ever-strengthening euro was brought up. With Draghi claiming that the currency’s strength was going to have consequences, with other European Central Bank members concerned about the Euro’s inflated levels. He did, however, confirm that the Euro’s strength whilst a concerning wasn’t a target.
Inflation Levels
The ECB also revised down their inflation forecast in 2018 from 1.3% to 1.2% another figure which will have attributed to comments that Eurozone interest rate would remain low for the time being. With inflation falling short of the magic 2%.
Eurozone Growth
Draghi took the opportunity to briefly cover the Eurozone’s growth with the ECB concurring that the economy was strengthening. Announcing that six million new jobs had been created in the Eurozone since the financial crisis.
During Draghi’s speech, GBP/EUR fell sharply from 1.0938 to 1.0878 as the markets reacted to his comments on the future tapering and his reluctance to intervene on the Euro’s current strength. The head of the European Central Bank failed to curb investors current appetite for the single currency.
The EUR/USD also continued to gain momentum breaking the $1.20 mark comfortably. Draghi’s speech saw the EUR/USD spike from 1.1974 to 1.2041 with levels being maintained.
Can the Euro continue to strengthen?
In a word yes, with geo political issues including Brexit and the North Korean tensions the Euro is providing investors with a safe haven. Investors are also reacting to central banks action rather than comments currently so even with the ECB stating that the Euro strength could have consequences they are unlikely to divert away from the single currency until they see action. Many experts expect the Euro’s strength to prevail with some Investment banks still convince that GBP/EUR could hit parity.
EUR/USD also seems likely to continue to break records with the pair having enjoyed six consecutive months’ worth of gains. The FED have also been extremely downbeat this month effectively delaying any chance of rate hikes, plus the focus the White house’s focus will correctly be on tending to needed infrastructure repairs following the terrible events in Houston and Florida.
