Economy

Draghi Says Exchange Rate Volatility Is Source Of Concern

Draghi Says Exchange Rate Volatility Is Source Of Concern

European Central Bank (ECB) chief Mario Draghi warned on Thursday that the surge in the euro was a source of uncertainty and said the bank might have to review strategy if USA comments on a weak dollar lead to a change in monetary conditions.

"On the one hand, the prevailing strong cyclical momentum could lead to further positive growth surprises in the near term". Speaking at the World Economic Forum in Davos, he talked down the currency by indicating that "a weaker dollar is good for us". The company's bottomline was hurt by rising commodity costs and unfavorable currency exchange rates, and it expected more pain to come from higher raw material prices in 2018.

In a press briefing after the ECB kept interest rates unchanged, Draghi said underlying inflation in the euro zone is expected to rise gradually over the medium term supported by the bank's monetary policy measures as well the economy's continued expansion.

Weaker odds of the European Central Bank winding down its long-running quantitative easing program before the end of the year could weigh heavily on the EUR/USD exchange rate. The corresponding index is seen at 112.3 in January versus 112.5 in December.

The single currency scaled $1.24 overnight for the first time in over three years, crowning a stellar rise over the past 2-1/2 months from $1.1608 in the first week of November.

More news: United States stocks-Wall Street climbs on Intel, healthcare boost

Policy makers reiterated that they'll continue buying 30 billion euros ($37 billion) of assets a month until at least the end of September. "It's not that we were arguing but we were debating the pros and cons. the big cloud over the forecast, as well as our discussion, is NAFTA", Poloz told a news conference. The disappointment likely scaled back expectations regarding the prospect of a rate hike from the RBNZ this year.

Draghi spoke after the bank left its stimulus levels and interest rates unchanged. Naturally, it's US President Donald Trump's speech on Friday that is most hotly anticipated given growing concerns globally about protectionism, with many other leaders having warned against it already at the event. During the press conference, ECB President Draghi carried on with dovish tone, noting in particular that domestic inflationary pressures continue to be weak.

No changes are expected Thursday.

Draghi noted that for the European Central Bank, the question raised by exchange rates volatility was whether it would have an effect on the eurozone's "inflation path". We still see subordinated debt of solid European banks as one of the few segments that still generates a decent yield.

The ECB has bought nearly 2.3-trillion euros (R34-trillion) of government and corporate bonds, offered cheap loans to banks and set interest rates at historic lows, aiming to stoke eurozone growth and boost inflation towards its target of just below 2 percent.


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