- European Central Bank President Mario Draghi dropped no hints about reducing the ECB’s monetary stimulus program at his press conference Thursday.
- Still, EUR/USD strengthened as he was speaking, lifted by a hint that tapering could be discussed in the fall.
- Earlier, the ECB made no changes to its policy settings, as expected.
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EUR/USD strengthened Thursday as European Central Bank President Mario Draghi left the markets guessing about when or if the ECB will begin to reduce its monetary stimulus program. However, he did say that discussions should take place in the fall.
Speaking at a press conference after the bank left all its interest rates and its EUR60 billion-per-month asset-purchase program (APP) unchanged, in line with analysts’ forecasts, he dropped no hints that a so-called “tapering” of the program is imminent or that policy could be tightened next year. Moreover, he repeated that a substantial degree of “accommodation” is still needed.
Earlier, the ECB’s previous assertion that “we stand ready to increase our asset purchase program in terms of size and/or duration” was left unchanged in the bank’s formal statement. Analysts had been divided over whether the statement would be left as it was or the reference to “size” would be dropped. Leaving out the reference to “duration” was seen as less likely but either change would have likely boosted the currency.
Talk about a possible change in Draghi’s language, paving the way for further hints that policy could later be tightened, have grown as the Euro-Zone economy has strengthened. However, inflation has fallen to 1.3% in June from 1.9% in April – still further from the ECB’s 2% target. Moreover, a firmer Euro – due in part to a weaker Dollar – has tightened monetary conditions, making it difficult for the ECB to “taper” its stimulus program.
Looking ahead, Draghi is due to speak at the Jackson Hole symposium in late August, where again his comments will be monitored closely ahead of the next ECB meeting on September 7. Any language “tweaks” then would likely pave the way for a reduction in monetary stimulus in 2018.
Chart: EURUSD Five-Minute Timeframe (July 20, 2017)
--- Written by Martin Essex, Analyst and Editor
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