Draghi Says Exchange Rate Volatility Source Of Uncertainty

Concerns over exchange rate volatility and its causes dominated European Central Bank President Mario Draghi’s press conference on Thursday, where he concluded that the recent surge in euro was a source of concern and asserted that an interest rate hike was unlikely this year.

He also said that “several ECB policymakers expressed concern” over the recent statements from the US and such worries were “broader than the exchange rate, but the status of international relations right now.”

Recent comments from US Treasury Secretary Steve Mnuchin have sent the dollar to three-year lows this week. His remark at the WEF forum in Davos that a weak dollar is good for the US economy has raised eye-brows.

Referring to the latest International Monetary and Financial Committee agreement, Draghi signaled that talking up or down currencies could be in violation of the G20 agreement that countries will not indulge in currency wars.

Christine Lagarde, the IMF managing director, has called on Mnuchin to clarify his comment after the dollar plumbed new lows.

Mnuchin sought to talk down his statement on Thursday, saying it was consistent with his earlier comment that “we are not concerned where the dollar is in the short term.”

Back in Eurozone, Draghi said euro area expansion was continuing at a robust pace and has strengthened the bank’s confidence that inflation will move near to its target of about 2 percent.

However, domestic price pressures remain muted overall and have yet to show convincing signs of a sustained upward trend, he reiterated.

“Against this background, the recent volatility in the exchange rate represents a source of uncertainty which requires monitoring with regard to its possible implications for the medium-term outlook for price stability,” the ECB Chief said.

“Overall, an ample degree of monetary stimulus remains necessary for underlying inflation pressures to continue to build up and support headline inflation developments over the medium term.”

Draghi also said, “Based on today’s data I can see very few chances that interest rates could be raised at all this year.” Markets also expect a rate hike only in the second half of 2019.

Answering reporters’ questions, Draghi said, “We don’t target exchange rates. They are important for growth and price stability.”

Quizzed on the chances of ending stimulus, Draghi said there was a need to distinguish between a sudden stop, extension of the asset purchase programme and gradual tapering.

The Governing Council has agreed to discussing these, he suggested. He also said that the bank has taken note of the market sensitivity to signals in the minutes of the previous meeting that the forward guidance language would be altered soon.

Draghi also said that policymakers did not discuss the link between inflation and stimulus.

Earlier on Thursday, the ECB left all three interest rates and assets purchases unchanged. There was also no change in the wording of the forward guidance, contrary to market expectations.

The material has been provided by InstaForex Company – www.instaforex.com