Draghi took to the stage in Brussels today in order to address the latest sentiment on the Eurozone Economy and current Monetary policy. The effect on the Euro was far from profound seeing the Euro Rate Today remain largely unaffected. It did however paint a picture of what key attributes will spur monetary policy change.
The minutes produced for his speech stated that the European Central Bank were seeing the European economy become:
Solid and spreading across other countries and sectors.
He also highlighted that previous downsides and risky tail winds were diminishing with domestic consumption and investment were diluting the risks that were present last year. Also stating that recovery had been spurred by global factors.
He did however warn markets to be prudent stating that:
Domestic price pressures to strengthen, we still need very accommodating financing conditions.
Potentially indicating that the low rates could be around for a while longer.
He also highlighted that another necessity was:
Inflation to return to and durably stabilise around levels close to 2%.
With current Eurozone Inflation falling short of the optimum 2%, it is unlikely that anything dramatic will occur with monetary policy until inflation remains as consistent at European growth.
Many expected little indication of short-term monetary policy change, hence why many currency pairs remained relatively unaffected. The main motivator for policy change will be more sustainable inflationary levels and continual growth. Once this is achieved the ECB will be more compelled to review.
In the hours following Mario Draghi’s statement the Euro rate today remained largely unchanged. The GBP/EUR remaining unaffected potentially due to the UK bank holiday. The GBP/EUR pair trading between 1.1456 and 1.1494; the currency pair was almost completely unaffected by the statement.
EUR/USD saw a short sell off but regained any lost ground in the following hours showing that Draghi’s tone had already been priced into the rates. The EUR/USD currently sits at 1.1179 just under 70 behind a 6-month high. In truth the Euro rate today remained almost unaffected.