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Draghi reassurance after ECB surprise - MUFG

FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, notes that the euro has weakened modestly following a speech late on Friday from ECB President Draghi in which he attempted to repair some of the unwanted tightening in monetary conditions which initially followed last week’s ECB meeting.

Key Quotes

“Most notably he stated that “there cannot be any limit to how far we are willing to deploy our instruments, within our mandate”, and that “QE is here to stay”. He acknowledged that the package of new easing measures announced last week were only a “recalibration” which were meant to address the reaching our inflation objectives. He added as well that that the decision to reinvestment principal payments on debt held by the ECB will significantly add some EUR680 billion of liquidity into the system by 2019 highlighting that the market’s initial unfavourable reaction may not have given enough credit to the ECB’s new looser for longer policy stance.”

“Nevertheless the outcome from last week’s policy meeting still has cast some doubt on whether the ECB’s policies will prove successful at lifting inflation back towards their target as quick as possible. The more dovish members appear to have suffered a defeat.”

“As a result, the initial unwanted tightening in monetary conditions and renewed decline in the price of crude are already posing downside risks to the updated outlook for inflation. The comments from President Draghi support our view that the euro is unlikely to stage a sustained rebound in the year ahead.”

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