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ECB news and analysis

  • EURUSD fell then recovered Thursday after European Central Bank President Mario Draghi said risks in the region have moved to the downside.
  • Earlier, the ECB left all its benchmark interest rates unchanged, as expected.

ECB Highlights downside risks

EURUSD fell back Thursday after European Central Bank President Mario Draghi said incoming economic data have been weaker than expected and that risk has moved to the downside. However, it soon recovered.

Speaking at a press conference after the ECB left all its key interest rates unchanged, Draghi said persistent uncertainty is weighing on sentiment and that significant monetary stimulus is still needed. Near-term data are likely to be weaker than previously anticipated, he added, while underlying inflation is muted.

Today's was the first meeting under Draghi's tenure where the ECB has shifted its language around its economic assessment at a meeting without updated economic projections.

Earlier, the ECB's rate-setting Governing Council left all its key interest rates unchanged, as expected: its refinancing rate at zero, its deposit rate at -0.40% and the rate on its marginal lending facility at 0.25%.

EURUSD Price Chart, Five-Minute Timeframe (January 24, 2019)

Latest EURUSD price chart post Draghi.

Chart by IG (You can click on it for a larger image)

In a statement, the ECB said again that it expects rates to remain unchanged at least through the summer of 2019 and in any case for as long as necessary. The Governing Council intends to keep reinvesting in full the principal payments from maturing securities purchased under its asset-purchase program for an extended period of time past the date when it starts raising rates.

Weak PMI data

Against the background of a slowing Eurozone economy, the most important question now is whether the ECB will raise Eurozone interest rates in the third quarter of this year or whether an increase will likely be postponed to the fourth quarter or even to 2020.

Indeed, as growth slows, it is even possible that the next move will be further rate cuts.

In a report released earlier Thursday, IHS Markit said Eurozone business growth came close to stalling at a 5-1/2 year low in January, with the companies it surveyed reporting the first drop in demand for more than four years. Its disappointing Purchasing Managers Index data indicate that the Eurozone economy is expanding at a quarterly rate of just 0.1%.

More to read

Using News and Events to Trade Forex

Interest Rates and the FX Market

Eurozone Debt Crisis Timeline

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.comor on Twitter @MartinSEssex