Article by ForexTime
The European Central Bank announced its policy decision on Thursday and as expected held the main interest rate on hold at 0.15 percent. What had a big impact on the euro and what markets were watching were ECB President Mario Draghi’s news conference. The euro fell to as low as 1.3341 by 14:00 GMT. The following are some highlights of Draghi’s presser:
On the euro exchange rate:
“The fundamentals for a weaker exchange rate are today much better than they were two or three months ago.”
On inflation:
“We haven’t observed any decline on the medium to long-term (inflation) expectations. Long-term expectations remain anchored at 2 percent, other expectations remained anchored at the previous levels. Short-term expectations indeed have declined.”
Free Reports:
On the euro/US rates divergence
“Markets have perceived that the euro, that monetary policies in the euro and in the United States are and are going to stay on a diverging path for a long period of time. Other central banks have been reducing their exposure to the euro. And if you look at how markets are expecting real rates to be for the foreseeable future, meaning until 2017, no, 2019, current expectations are that real rates will remain negative in the euro area for a much longer time than they will be in the United States.
“I think that is one of the major developments that I would see pick up from what happened in the last three, four months.”
On growth:
“It is quite clear that if geopolitical risks materialize, it is quite clear that the next two quarters will show lower growth.”
On geopolitical risk: “Geopolitical risks are heightened, are higher than they were a few months ago. And some of them, like the situation in Ukraine and Russia will have a greater impact on the euro area than they … have on other parts of the world.
“Now, it’s hard to assess this impact at the beginning of these crises. If one looks at the figures for trade or financial flows, they would by and large reveal a picture of very limited interconnections. Even as we go and look at the main financial institutions, while we count the financial institutions that are especially exposed to Russia (there are fewer) than a handful of names.”
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