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Dovish ECB Drags on EUR/USD- Draghi Warns Inflation Remains Subdued

Dovish ECB Drags on EUR/USD- Draghi Warns Inflation Remains Subdued

Diego Colman, Market Analyst
  • ECB leaves rates unchanged and maintains bond-buying scheme
  • Draghi says there is no convincing evidence of upward trend in underlying inflation and that the ECB did not discuss reducing stimulus yet
  • EUR/USD heads lower after dovish comments by Mario Draghi

As broadly expected by the market, the ECB erred on the side of caution and decided to keep its key interest rates on hold after convening for its first policy meeting of 2017.

The monetary authority maintained its Main refinancing rate unchanged at 0.0%, its Marginal Lending Facility at 0.250% and its Deposit Facility rate at -0.40%. In addition, policy makers did not make any changes to its bond-buying stimulus scheme, and said that the entity would continue asset purchases at €80 billion a month until the end of March and then at €60 billion a month from April to December 2017.

In the press conference that followed, Mario Draghi stressed that underlying inflationary pressures in the European region remain subdued and that there is no convincing evidence of an upward trend in consumer prices. As far as the health of the broad economy, Draghi indicated that risks to the outlook continue skewed to the downside for which the ECB did not discuss reducing stimulus at this meeting.

Chart 1: EUR/USD 1-minute Chart (Jan 19, 2017 Intraday)

Dovish ECB Drags on EUR/USD- Draghi Warns Inflation Remains Subdued

Immediately, after the Draghi´s dovish remarks crossed the wires, EUR/USD dropped as low as 1.0602, or 0.2% in intraday trading as market participants speculated that monetary policy would remain accommodative for longer in the economic bloc in the absence of persistent inflationary pressures and negative risks to the outlook.

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