Yesterday the Euro closed local trading slightly stronger against the US Dollar as the President of the European Central Bank assured investors that Eurozone banks are taking action to support their balance sheets and help the currency bloc’s recovery progress.
During the Davos conference Mario Draghi stated; ‘There is this return of confidence. So ideally it is a much better situation to perform asset quality review and stress tests than it was in 2011 when the markets were in constant turmoil. Many things have happened to the banking system all over the world and to the European banking system as well.’
The Euro was already enjoying a fairly buoyant week against the US Dollar thanks to Thursday’s impressive PMI and consumer confidence reports and Draghi’s relatively upbeat view kept the Euro trading higher in a quiet news day for the US.
The comments also served to reinforce the difference the past 12 months has made to the Eurozone. At previous Davos gatherings the Eurozone crisis has been one of the top issues under discussion but the currency bloc’s tentative return to growth is helping to restore investor confidence and giving other economic concerns a chance to take centre stage.
Although Draghi admitted that the recovery remains fragile and patchy he pointed out a number of improvements which have occurred in the last 18 months, including rising financial stocks and falling government bond yields in Spain.
Concerns regarding the possibility of the ECB introducing negative interest rates to boost growth in the currency bloc have restrained the Euro’s upward momentum in recent months and with annual inflation falling well below the ECB’s target of close to 2% the central bank has stressed the importance of keeping fiscal policy accommodative.
In reference to deflation Mr Draghi commented; ‘When you ask me what instruments would you use for coping with deflation, if deflation were to happen, the answer is with all the instruments that are allowed by our mandate’.
Next week the EUR/USD pairing can be expected to experience significant volatility as German growth, employment and retail sales figures are published.
While the Euro could advance if these reports come in at or above expected levels, indicating that Germany continues to drive the Eurozone’s economic recovery, the Federal Reserve might announce the further tapering of easing when it meets on the 29th. Although trimming stimulus has largely been priced in the ‘Greenback’ could surge against the Euro if asset purchases are reduced by more than 5 billion Dollars.
Euro (EUR) Exchange Rates
As of 12:30 GMT
The Euro/US Dollar Exchange Rate is currently in the region of: 1.3675
The Euro/Pound Sterling Exchange Rate is currently in the region of: 0.8295
The Euro/Australian Dollar Exchange Rate is currently in the region of: 1.5753
The Euro/ New Zealand Dollar Exchange Rate is currently in the region of: 1.6657
The Euro/ Canadian Dollar Exchange Rate is currently in the region of: 1.5156