Euro Falls Against Dollar Following ECB Monetary Policy Meeting

  • Euro Falls Against Dollar Following ECB Monetary Policy Meeting

Euro Falls Against Dollar Following ECB Monetary Policy Meeting

The ECB will reinvest the principal repayments of maturing securities acquired under the asset purchase program for a prolonged period after the net asset purchase has ended and in any case as long as necessary. Bank of England policy makers say they may need to raise interest rates faster than previously anticipated and new Federal Reserve Chairman Jerome Powell has talked up the economy so much that there's speculation of as many as four USA hikes this year. The first is that the timing remains uncertain.

The ECB Governing Council meets on Thursday in Frankfurt, Germany, announcing its policy decision at 1245 GMT. "It also mostly shut down expectations by some that early 2019 rate hikes were in the cards".

Let me now explain our assessment in greater detail, starting with the economic analysis. Economic growth in the eurozone hit a strong annual rate of 2.7 percent in the fourth quarter, making the prospect of added stimulus remote.

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The ECB staff macroeconomic projections presented in March are optimistic on growth.

Its inflation projections were also unchanged for 2018 at 1.4 percent, but slightly lowered for 2019 from 1.5 to 1.4 percent.

"While we certainly don't want to become bearish on the growth outlook, recent data seem to suggest that the acceleration in growth might soon start to level off", Peter Vanden Houte wrote in ING's latest global outlook.

Legal Disclaimer: The material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instruments. Besides, eurozone's inflation has not shown any significant rise since January's meeting but instead, it inched lower from 1.3% to 1.2% y/y according to initial CPI estimates for the month of February. This reflected mainly negative base effects in unprocessed food price inflation. Euro bulls capitulated and by mid afternoon in Europe on Thursday, the single currency was down 0.62% versus the dollar to $1.2334.

The Euro initially surged in the wake of the meeting at the European Central Bank dropped its easing bias from its policy statement, signalling to many that it was taking steps towards normalising monetary policy.

European Central Bank made a decision to keep its benchmark interest rate unchanged at 0.00 percent, holding its deposit facility rate at its current level of -0.4 percent and its marginal lending rate at 0.25 percent. Accordingly, the narrow monetary aggregate M1 remained the main contributor to broad money growth, continuing to expand at a solid annual rate.

The inflation forecast for this year was maintained at 1.4 percent, while the outlook for next year was trimmed to 1.4 percent from 1.5 percent.

The euro forfeited early gains against the dollar to decline after Mr Draghi said monetary policy would remain "reactive" and measures of underlying inflation were still subdued.

The inflation rate has been away from the ECB's target of "below, but close to 2 percent" for sometime now. In antipodean currencies, aussie/dollar and kiwi/dollar retreated to 0.7800 (-0.29%) and 0.7263 (-0.29%) respectively on the back of potential trade risks as Australia and New Zealand are highly exposed to commodity prices which would get into a bearish run if the U.S. tariff measures materialize. The Governing Council urges specific and decisive steps to complete the banking union and the capital markets union.