ECB United Behind Stimulus Exit Plan, May Defends Brexit Plan

The European Central Bank released its October monetary policy meeting minutes on Thursday. The minutes showed that policymakers stressed the need to reaffirm plans to dial back monetary stimulus even as some saw growing risks to the economy. British Prime Minister Theresa May continued to face sharp criticism from U.K. lawmakers as she addressed the House of Commons after the publication of a 26-page draft political declaration with the EU on post-Brexit relations.
James Hyerczyk
Euro Building

It was a quiet day in the Forex markets on Thursday with the United States and Japan on bank holidays. There was news. However, the light volume and the absence of the major U.S. and Japanese banks led to muted reactions by traders. The main events of the day were the release of the ECB Monetary Policy Meeting Accounts and a speech from U.K. Prime Minister Theresa May on Brexit.

Euro

The European Central Bank released its October monetary policy meeting minutes on Thursday. The minutes showed that policymakers stressed the need to reaffirm plans to dial back monetary stimulus even as some saw growing risks to the economy. This is important because investors have been questioning the ECB’s resolve to follow through on plans to stop its bond purchases at the end of the year and raise interest rates sometime after next summer.

The concerns were raised because of weak economic data in the Euro Zone, heightened stock market volatility and lingering issues between Rome and Brussels over Italy’s budget.

ECB policymakers acknowledged the disappointing economic data, but chose instead to focus on the big picture which indicated widespread economic growth and accelerating inflation.

“It was important to emphasize that the incoming information, while somewhat weaker than expected, remained overall consistent with an ongoing broad-based expansion of the Euro area economy and gradually rising inflation,” the ECB said in the minutes of the meeting.

At the October 24-25 central bank meeting, the ECB kept its benchmark interest rates at record lows and repeated its intention to stop adding to its 2.6 trillion Euros ($2.97 trillion) of bonds at the end of the year in light of higher inflation. Policymaker calls for adopting a more cautious outlook were isolated.

“While there was broad agreement that at present the risks to growth could still be considered to be balanced overall, a remark was made that a number of arguments pointed towards risks to the growth outlook tilting to the downside,” the ECB said in the minutes.

British Pound

Early Thursday, British Prime Minister Theresa May continued to face sharp criticism from U.K. lawmakers as she addressed the House of Commons after the publication of a 26-page draft political declaration with the EU on post-Brexit relations.

May said the agreement will ensure a “smooth and orderly” British departure from the European Union. Britain is scheduled to officially leave the 28-nation EU on March 29. This would be the first such move by any country.

“The draft text that we have agreed with the European Commission is a good deal for our country and for our partners in the EU,” May said.

May also told UK policymakers that the outlines for future help protect jobs, end the jurisdiction of the European Court of Justice in the U.K., give British fisherman more control and avoid the return of a hard border between EU member Ireland and Northern Ireland, which is part of the United Kingdom.

Finally she also said the agreement paves the way for a free trade agreement with the bloc as well as allowing Britain to forge new trade deals around the world.

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