Daily Management Review

Draghi's Speech in the European Parliament Knocked Euro Down


11/12/2015


Statements, made by Mario Draghi of the European Central Bank, have collapsed European currency.



swiss-image.ch/Photo by Monika Flueckiger
swiss-image.ch/Photo by Monika Flueckiger
The euro has fallen to 1,069 to the dollar immediately after Draghi’s speech at the European Parliament. He said that the ECB is ready to use all possible tools, if no changes in inflationary trend to the target value (2%) are recorded in September 2016.

- We have always repeated that purchase of assets within the program may continue after September 2016. If we do not see a sustainable correction in the inflation’s direction in line with our objectives, we can activated other instruments to enhance the effect of the asset repurchase program.

- If we came to the conclusion that our medium-term target of price stability was threatened, we would have used all tools available to the Central Bank in order to maintain an adequate level of monetary stimulus.

Investors interpreted this as a clear continuation of the quantitative easing program in the coming years and even increase of its volume. Draghi also said that inflation dynamics has weakened considerably against the backdrop of slowing global economy.

Downside risks, associated with global economic activity and trade, are obvious. Moreover, the dynamics of inflation have eased, mainly due to low oil prices and the delayed effect of the strong euro. In addition, price pressures remain very weak, and signals of core inflation’s stable turn became weaken now.

In addition, leaders of the European Central Bank are likely to further reduce the deposit rate at the December meeting.

The move, according to the ECB, will loosen the single European currency and, as a consequence, increase inflation. Judging by the dynamics of the market, traders are already including reduction in deposit rates by 0.1% in the prices. Some sources say that more severe decline is being considered.

In addition, there is a possibility of changing the program of buying assets, the volume of which now stands at 60 billion euros a month.

source: reuters.com






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