On Thursday, the European Central Bank held a press conference of the central bank’s meeting regarding monetary policy and the Union’s economic state so far. The conference was led by its president Mario Draghi, along with Vice President Vitor Constancio. Draghi stated several data indicating a dovish outlook for Europe’s economy, stating that the ECB interest rates will remain unchanged.
Following the central bank’s outlook on economic and monetary status of the Union, most investors drove the European euro to soar and head to a bull market against the British pound and the US dollar.
The euro traded stronger against the sterling and greenback. EUR/GBP exchange rate changed hands at 0.8717 1011 GMT. The British pound has been performing weakly against other currencies due to the many uncertainties over Brexit talks. Since the last week of February, the euro has been gaining against the sterling, climbing from 0.8421 in February 24 to surged value now at 0.8717.
With ECB’s latest dovish sentiment on its monetary policy, the euro was able to continue its rally in the market. In addition to that, the ever weaker pound continues to worry investors even affecting UK stocks. Due to all the macroeconomic events taking place in the UK, it is likely the Bank of England will retain interest rates low for a while, which could potentially further hurt the British pound.
Meanwhile, against the greenback, the euro was able to rally after the ECB conference at 1.0612. Prior to the ECB’s conference, the euro has been struggling against the greenback brought about by concerns over the upcoming French presidential elections. French presidential candidate Marine Le Pen recently increased her chances in winning the election, driving several investors to sell the euro.
The upcoming Dutch election is likely to have a significant effect on the euro in the future.
ECB Conference Details
The press conference highlighted several key details about the ECB’s meeting of the Governing Council. Draghi quickly went in with the central bank’s decision to retain the present interest rates held by the ECB, seeing that the present monetary policy was able to maintain “very favorable financing conditions.”The retained condition was necessary for the central bank to secure the inflation rates to go lower 2%, but still close around this level.
The ECB said that it would still go through with its asset-buying program throughout 2017 under the asset purchase programme (APP). According to the Governing Council, the current net asset purchases at a monthly pace of €60 billion will go through until December of the year, unless the Council sees a needed instance for adjustment in inflation rates.
The euro area’s real GDP also climbed by 0.4% quarter on quarter, during Q4 2016. This data have exhibited an ongoing economic expansion to be seen further.
Draghi assured investors that due to the current positive performance, “there is no longer a sense of urgency in taking further actions while maintaining the accommodative monetary policy stance, including the forward guidance… That urgency that was prompted by the risks of deflation isn’t there,” removing a phrase from the initial introductory statement.
Meanwhile, under the labour market status, employment rate continues to increase, attributed to previous structural reforms undergone, which in turn gave a good impact on household income. The improved household income was able to support the EU’s private consumption rate, with an additional sign of better global recovery and improved global trade. Other economic sectors signal sustainable growth as well, which include improved trade relations, rising PMI data, and continuously declining unemployment rate.
The EU’s headline inflation, however, increased due to rising energy and food price inflation, still, the underlying inflation over these sectors remain to be quiet.
Still the EU sees no immediate reason to change its current interest rates, especially with recent status of the effectiveness of the monetary policy for improving economic growth. Draghi also mentioned that rates could go even lower, should there be a need. The Governing Council will always be on standby to raise rates in terms of size and/or duration.
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