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ECB Cuts its Euro-Zone Growth Forecast, Attributes Rate Cut to Inflation

ECB Cuts its Euro-Zone Growth Forecast, Attributes Rate Cut to Inflation

Benjamin Spier, Technical Strategist

THE TAKEAWAY: ECB cuts its Euro-zone growth forecast to -0.4% for 2013 -> ECB says inflation rate allowed the rate cut -> Euro trading higher

The European Central Bank lowered its growth forecast for 2013 to -0.4% from a previous estimate for 0% growth, and the growth forecast for 2014 was cut from 1.1% to 1%. Furthermore, this year’s inflation forecast was cut to 1.7% from 1.8%, and inflation for 2014 is now forecasted at 1.6%. The ECB’s monthly bulletin further said that risks to Euro-zone economic growth remain to the downside, while the risk to inflation is balanced.

The comments from the May bulleting largely matched Draghi’s comments following this month’s monetary policy decision to cut the interest rate by 25 points to 0.50%. The bulletin said the lower inflation, reported at a three year low of 1.2% in April, allowed the ECB to cut the interest rate. The bulletin further said that lowering borrowing costs will help a recovery later in the year. The bulletin further said that monetary policy will remain accommodative for as long as needed.

Talk of dovish monetary policy and lower growth is usually Euro negative, but most of the bulletin’s comments were already apparent to the market and therefore did not affect Forex trading. In fact, the Euro rose a bit in the minutes following the release to 1.3175 against the US Dollar. A two month high at 1.3242 may continue to provide resistance.

The Euro rose earlier in the session following some optimistic comments by Greek Finance Minister Stournaras. He said that Greece will return to the markets by the end of 2014, and that the country may receive some further debt relief.

The Pound may see volatility later in the session on the announcement from the Bank of England’s meeting on monetary policy for May. Expectations are for the asset purchase target and inflation rate to remain unchanged.

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EURUSD Daily: May 9, 2013

ECB_Cuts_its_Euro-Zone_Growth_Forecast_Attributes_Rate_Cut_to_Inflation_body_eurusd_daily_chart.png, ECB Cuts its Euro-Zone Growth Forecast, Attributes Rate Cut to Inflation

Chart created by Benjamin Spier using Marketscope 2.0

-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to instructor@dailyfx.com .

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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