nsucurrent.com May 20, 2018

Draghi Faced Nowotny Plea to Discuss ECB Policy

27 April 2018, 12:49 | Ruby West

Euro Declines As ECB President Draghi Cautions Over Soft Indicators

Weaker eurozone growth due to trade tensions, ECB chief says

He said it is partly a result of the high growth seen in Q4 2017 and also mentioned temporary factors.

Later in the press conference, Draghi said they have an unchanged confidence about reaching the 2 percent inflation target.

He also said the ECB's support to the economy was still needed and the central bank would reinvest bonds. But a slew of recent data suggests the eurozone area has lost some of its momentum.

Investors are tuning in to the ECB's latest policy decision this morning, as well as updates to the bank's quantitative easing plans and a press conference from Mario Draghi.

Business sentiment has already taken a hit, particularly in export-focused Germany, and a full-fledged trade war could quickly hurt growth - a risk already highlighted by policymakers at the ECB's March meeting.

The ECB president is not expected to offer any clues about when the bank will end its stimulus program, under which it purchases 30 billion euros ($37 billion) of bonds per month.

Economists polled by Reuters still expect bond purchases to end this year after a short taper and see the first rate hike in the second quarter of 2019, but some have started to flag risks of a delay. The Pound to Euro (GBP/EUR) exchange rate is now trending at levels of 1.1497.

This week's European Central Bank meeting comes as leaders of the eurozone's two biggest economies - France's Emmanuel Macron and Germany's Angela Merkel - visit Washington for talks with US President Donald Trump in a bid to end trade and geopolitical tensions.

The Governing Council, led by ECB President Mario Draghi, left the key interest rates unchanged after the policy session in Frankfurt, in line with economists' expectations.

A major concern for the European Central Bank is that nationalist rhetoric from the USA could decrease the value of the dollar, despite the Federal Reserve gearing up to raise interest rates several times in 2018.

In particular, winding back the bond-buying programme will depend on the ECB's success in driving inflation back towards its annual target of just below 2%.

Euro zone inflation is so weak that even after the creation of 9 million jobs since early 2013, measures of underlying price growth that strip out energy and food are barely rising.

Nonetheless, the euro's recent strength has had a relatively limited impact in recent weeks.

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