The euro traced out a similar pattern of trading to the GBP on Monday, climbing almost three-quarters of a cent up to 1.2350 by late morning in Europe as US equity index futures registered strong early gains. Most of the gains were reversed in the afternoon session, however, as ECB President Draghi was viewed as being on the dovish side of expectations. Overnight in Asia and this morning in Europe, however, the EUR has fared somewhat better; back on a US 1.23 ‘big figure’ but unable thus far to crack technical resistance around 1.2350.
ECB President Draghi’s testimony to the Committee on Economic and Monetary Affairs of the European Parliament said, “Looking ahead, we anticipate that headline inflation will resume its gradual upward adjustment, supported by our monetary policy measures. At the same time, uncertainties continue to prevail. In particular, the recent volatility in financial markets, notably also in the exchange rate, deserves close monitoring with regard to its possible implications for the medium-term outlook for price stability… Therefore, while the strong momentum of the euro area economy has clearly strengthened our confidence in the inflation outlook, patience and persistence with regard to monetary policy is still needed for inflation to sustainably return to levels of below, but close to, 2%. In fact, the evolution of inflation remains crucially conditional on an ample degree of monetary stimulus provided by the full set of our monetary policy measures: our net asset purchases, the sizeable stock of acquired assets and the forthcoming reinvestments, and our forward guidance on policy interest rates.”
The main contender for Mr Draghi’s job once his term of office ends is Bundesbank President Jens Weidmann. Speaking in Frankfurt this morning, he said that, “I believe it is important to gradually and dependably reduce the degree of monetary policy accommodation when the outlook for price developments in the euro area permits us to do so. If the upswing continues and prices rise accordingly, in my view, there is no reason why the Governing Council should not end the net purchases of securities this year… One thing seems clear to me: monetary normalization in the euro area will take a long time. Monetary policy will remain very expansive even after the end of net bond purchases.” The EUR opens in North America this morning at USD1.2325 and EUR/CAD1.5635.