Talking Points:
- The Euro traded lower versus the US Dollar
- ECB to review monetary policy in March when new macroeconomic projections would be available
- Oil prices dampened outlook for inflation in 2016
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The Euro traded lower versus the US Dollar (at the time this report was written) after today’s ECB Meeting Minutes reaffirmed the possibility for further easing at the next policy meeting. In their latest January policy meeting, the ECB kept policy unchanged with asset purchases remaining at a pace of €60 billion per month until March 2017, with main rate at 0.05% and the deposit rate at negative -0.30%. The decision to keep policy unchanged came after the central bank provided further stimulus at the December meeting, which led to a surge in the Euro, presumably due to the bank not meeting market expectations for more aggressive measures.
Looking in to the January account of the meeting, the bank emphasized risks stemming from china, emerging markets and lower commodity prices, which caused risk aversion in the markets. The bank said that the sharp decline in oil prices had significantly dampened the inflation outlook for 2016 in the euro area, which could turn negative for a number of months. Furthermore, the ECB expressed concerns over the outlook for external demand due to weakening global growth. While the bank emphasized that current monetary policy is working, downside risks had increased from the start of the year, which would require the bank to review, and possibly reconsider, the monetary policy stance at March when new macroeconomic projections would be available. The bank reaffirmed that policy rates would remain at current or lower levels for an extended period of time, and that there is a range of policy options in order to achieve a rate close to, but below 2% inflation.
As was mentioned today by DailyFX Currency Strategist Ilya Spivak, the market has been on the lookout for clues on possible expansion of stimulus at the March meeting. The Euro has been selling off since the start of the European session, perhaps in anticipation for further clues on stimulus. The comments in the meeting seemed to at least reaffirm the possibility for further measures, and the Euro traded lower versus the US Dollar.
EUR/USD 5 minute chart
