On Thursday Mario Draghi; president of the European central bank confirmed as many expected that rates would remain on hold in December. The rate, therefore, remains at 0.0%. Although this outcome will not have surprised many, market makers and investors will have tried to seek out clues on Draghi’s sentiment towards future interest rate rises and even more so to their timing. As they typically do when Draghi takes to the stage Euro to US Dollar rates reacted.
The Euro zones interest rates will once again remain at their historic low levels, with savers no doubt cursing Draghi and the ECB’s decision to keep rates on hold. With interest rates almost certain to remain low for the foreseeable and well past the asset purchase program.
Second in terms of importance to Draghi’s sentiment on interest rates was confirmation that the tapering on the ECB’s bond purchasing program. In previous months the ECB had made markets aware of their implementation plan of tapering to their bond-buying program. The president of the European central bank confirmed that January will see the continuation of the ECB’s reduced asset purchasing program. The program entails €30 billion of net assets being purchased, with the program continuing until at least September 2018 reducing from €60 billion in previous months. However, the ECB once again confirmed they have the ability to increase the program should the eurozone economy begin to splutter.
President Draghi also confirmed that growth was being revised up to 2.4% in 2018, insinuation that the eurozone was now at the point of transition from recovery to talking about expansion. However, the change from typical ‘downbeat Draghi’ did little to excite market with the Euro to US Dollar falling.
Draghi also confirmed that he believed the eurozone economy was also at the point of being self-sustainable confirming that the European central bank believed that the current low inflation would correct itself.
Touching upon inflation the central bank envisages CPI to reach 1.4% in 2018 and rise to 1.7% in 2020, much closer to their target inflation rate of 2%. Whilst they expect growth to slow to 1.6% in 2020.
When naming a few risks to the Euro zones continual growth Draghi highlighted a few areas of concern. These included global factors and Foreign exchange risk, presumably meaning that incrementally Euro to US Dollar which continues to strengthen, rising from a low of 1.0406 in early January to a high of 1.20.35 in early September.
In the lead up to the central bank’s interest rate decision and the accompanying speech the Euro to US Dollar rate had gained momentum with the pair reaching a week high of 1.1844 just 2 cents behind the year high, however the gains were short-lived with markets reacting to the lack of new details in the ECB’s asset purchasing exit plan. The Euro to Dollar rate closed this week’s trading around 1.1749.
With the year coming to an end and Christmas fast approaching you would be correct in presuming there would be very few euro zone data releases this week, don’t expect much data derived Euro To US Dollar volatility with only mid-tier data due to be released this week.
This week also sees the regional elections take in Spain place following the controversy surrounding Catalonia’s bid for Independence.