The euro halted its two-day advance against the dollar today following comments by European Central Bank President Mario Draghi that he will roll out monetary easing policies, including a negative interest rate, should the 18-nation currency strengthen any further. The measure is meant to deal with the persistently low inflation in the euro zone.
The euro fell to $1.3820, eroding its earlier gains that saw it touch an intraday high of $1.3845, which was mostly due to a report by German IFO Institute that showed business confidence in Europe’s biggest economy rose in April.
While acknowledging that inflation in the economic bloc will remain low for some time before it accelerates, Draghi revealed that ECB will launch asset-purchase program if the inflation plunges any lower.
“The exchange rate is an increasingly important factor in our assessment of the outlook for price stability,” he said. However, his comments were greeted with a pinch of salt by most analysts.
“Draghi’s speech did not add anything new, but amplifies the importance of next week’s inflation numbers,” Jeremy Stretch, the head of currency strategy at CIBC World Markets told Reuters.”If inflation doesn’t jump as the ECB is expecting, it could be a catalyst for further action. Until then, we expect the euro to trade in ranges.”
The euro’s rise has also been fuelled by other factors such as increased asset purchases by foreign investors and the fact that most banks have repaid most of the loans advanced by ECB, while U.S. and Japanese central banks are lending more. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
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