European Central Bank monetary stimulus still needed to push up inflation -Draghi

EUR  USD price chart

U.S. Treasury Secretary Steve Mnuchin said he welcomed a weak dollar, arguing that it was good for U.S. trade, and Commerce Secretary Wilbur Ross said "U.S. troops are now coming to the ramparts" in global trade wars.

"In other words, he said very little really, but he said it under snow-plastered slopes and he was speaking to a market where dollar bulls have been under the cosh".

Investors were eagerly awaiting Mr Draghi's comments on the euro after European Central Bank policy-makers kept interest rates and guidance unchanged, all the more since US Treasury Secretary Steve Mnuchin on Wednesday talked of the benefits of a weak dollar. At today's meeting, the Governing Council of the European Central Bank decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility should remain unchanged - 0.00%, 0.25% and -0.40%, respectively.

Exchange rates are determined by many factors such as trade flows and central bank policies. But rapid economic growth and the likely end of the bond buys later this year justify some currency strength. Those remarks broke with a twenty-year US policy of speaking in favor of a strong dollar. This was not enough dovishness for the traders and they began to push the euro higher as it rocketed through the 1.25 region and it seemed that it would only be a matter of time before it went towards 1.26.

The 2019 growth outlook was lifted to 1.9 percent from 1.7 percent. Currently, the bank says the purchases will continue at least through September and longer if necessary, leaving the exact end open.




The survey also confirmed Draghi's confidence in growth as the GDP projection for this year was raised to 2.3 percent from 1.9 percent three months ago.

Most euro zone sectors ended in negative territory, while banks, which tend to benefit from expectations of a tighter monetary policy, rose 1.2 per cent to their highest since August 2015.

Consequently, euro zone bond yields - which move inversely to price - dropped 1-3 basis points across the board on Thursday.

But that progress was stopped later in the day as Trump sought to play down the speech by the USA treasury secretary by saying that the dollar was bound to get stronger due to the strong economic data.

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