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ECB's Draghi: Geopolitical tensions pose downside risk to Eurozone economic outlook

FXStreet (Łódź) - During the press conference following ECB's monetary policy announcement for August, president Mario Draghi said that that the economic recovery in the Eurozone proceeded at a moderate pace while inflation remained at a low level and unemployment still excessively elevated.

Therefore, "key interest levels will remain in place for extended period of time," the ECB head signaled, adding that "inflation expectations for medium- to long-term continue to be firmly anchored in line with our aim of just below 2%."

As far as the slowdown in July CPI to 0.4%, Draghi attributed it to lower energy prices and suggested that we should see an upward movement soon.

The Governing Council decided not to make any moves in August as it was still observing the impact of measures implemented in June, which have led to easing of ECB's policy stance and are expected to help push inflation up towards the 2% target.

The targeted longer-term refinancing operations (TLTROs), which are to kick off in September, will enhance the accommodative stance. It is estimated that Eurozone will borrow 450 billion to 850 billion euros under the TLRTO program.

Furthermore, Mario Draghi informed that the work on the ABS program intensified and that the central bank would hire a consultant to assist with its implementation.

As far as the recent escalation of geopolitical tensions is concerned, Draghi stated that it was still difficult to assess their impact on the Eurozone economy. He pointed out however that few financial institutions in the area were particularly exposed to the Ukrainian crisis.

Draghi stressed however that "energy prices pose the greatest risk" and assured that in case of a shift in the medium-term outlook, the ECB would implement QE.

Finally, the ECB head remarks that he sees much better fundamentals for a weaker euro, adding that QE would include government bonds. His attempts to talk down the common currency are successful and EUR/USD slides during his speech from 1.3386 to 1.3368.

EUR/USD wavers on the back of Draghi’s comments

The EUR/USD fell sharply to a low of 1.3350 but it didn’t took it too long to bounce back to the upper side of its range and even mark a marginal new high for the day as investors assess ECB Draghi’s words.
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