Homepage » News » EUR/USD » EUR USD Close to Two Week Low as Draghi Remains Committed to Ultra-Loose Monetary Policy

EUR USD Close to Two Week Low as Draghi Remains Committed to Ultra-Loose Monetary Policy

Despite attempts to recover yesterday the Euro US Dollar (EUR USD) exchange rate slipped again on Wednesday afternoon as markets reacted poorly to Mario Draghi’s address to the Dutch Parliament.

The European Central Bank (ECB) President rejected criticism of the bank’s stimulus programme and ultra-low interest rates, which he said were necessary measures to prevent the Eurozone from failing during the debt crisis.

He hailed the ECB’s ‘decisive policy action’ as ensure that the crisis did not spiral further out of control, and maintained that the measures were still needed to ensure that the Eurozone’s economic recovery stayed on course.

He made particular mention of inflation as he warned that despite the recent uptick and fading of deflationary pressures that the ECB must remain vigilant in the face of a historically volatile inflation rate.

Draghi said in his speech yesterday;

‘Since the start of 2013, inflation had drifted consistently away from the ECB’s target rate of below but close to 2% over the medium term, reaching levels below 1%.’

‘Without counteracting measures, this low inflation could have turned into a deflationary spiral which would have deepened our economies’ woes considerably.’

The tone of Draghi’s speech came as a disappointment to many EUR investors who had hoped that the recent strengthening of the Eurozone PMI’s to pre-crisis levels may have prompted the ECB to take a more hawkish tone toward monetary policy.

However EUR USD found some strength this morning as the European Commission revised Eurozone growth to 1.7% this year, up from previous estimates of 1.6%, along with expectations that unemployment will continue to fall.

Meanwhile the US Dollar recovered from its initial losses yesterday as markets calmed following the shock firing of FBI Director James Comey by Donald Trump.

A wave of uncertainty shook the ‘Greenback’ on Wednesday morning as investors feared that this was another sign of Trump’s unpredictability and that it could have far reaching consequences on the President’s attempts to push through legislation in Congress.

However markets had calmed by the afternoon, with the US Dollar rising as investors instead focused on strengthening export prices and a hawkish speech from Federal Reserve of Boston President Eric Rosengren.

In his speech Rosengren argued that the Fed should seek to raise interest rates three more times this year in order to prevent the US economy from ‘overheating’ as he predicts that growth will rise faster than expected over the coming year, leading to a further fall in employment and pressure on the Fed.

Looking ahead the EUR USD exchange rate is likely to rise tomorrow if Germany’s first quarter GDP figures meet expectations, with economists forecasting that Germany’s growth will rise from 0.4% to 0.7% in three months to March.

The Euro’s climb is also likely to be aided by Germany’s latest CPI data with inflation predicted to have jumped from 1.6% to 2.0% in April.

Meanwhile the US Dollar may weaken this afternoon as analysts forecast that US jobless claims will have risen last week.

Current Interbank Exchange Rates

At the time of writing the EUR USD exchange rate was trending around 1.0874 and the USD EUR exchange rate was trending around 0.9199.