Draghi pushes back against United States weak dollar view

28 January 2018, 12:16 | Andres Norman

EUR USD price chart

EUR  USD price chart

Over the coming months, the European Central Bank will be hoping for signs that faster price growth may be on the way, such as eurozone workers negotiating hard for generous wage increases. Mnuchin provided balance to his comments insisting that while a weaker dollar has its benefits for trade, a strong dollar has benefits in other areas and that the United States isn't focused on its levels. Both reports though had little immediate impact on Treasuries, as the data, particularly new home sales, have done little to change expectations that the Federal Reserve will raise rates in March.

Draghi said Thursday that recently volatility in the euro's exchange rate was "a source of uncertainty" that merited "monitoring".

Like other central banks worldwide it has puzzled as higher economic growth - estimated at 2.4 percent in 2017 - and reduced unemployment have not brought faster price increases.

Germany's Ifo index rose to 117.6 points in January from 117.2 in December, matching an all-time high from November.

The region's four main currencies - the crown, the forint, the leu and the zloty - all eased slightly against the euro, led by the Hungarian unit, which shed 0.2 percent by 0845 GMT.

The dollar hit a three-year low against the euro on Thursday morning, before Draghi's press conference, to $1.24 for €1.

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

Draghi also said there were "very few" chances of a rate hike from the bank this year and said inflation pressures were now subdued but would rise in the medium term.

The stimulus would come from asset purchases, asset holding, reinvestment and forward guidance that interest rates will remain low, Draghi said. The advance came after the weekly EIA inventory data showed a drawdown in USA crude stockpiles for the tenth straight week.

The Fed has its first meeting of the year in the coming week, but with it being Janet Yellen's last meeting as chair no change is expected. 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.

"By reaffirming his commitment to keeping Eurozone interest rates lower for longer, the clear - if undeclared - aim of Mr Draghi's dovish press conference was to keep the euro in check and prevent a strong single currency from hurting Europe's export boom".

Britain, undergoing its own tricky negotiations as it tries to untangle itself from the European Union, is facing the opposite problem to the currency bloc with a weaker sterling since the Brexit vote driving nflation well above the Bank of England's target of 2 percent.



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