Euro Turbulence Against the US Dollar after ECB meeting

The euro has endured a shifting relationship with the US dollar, following the European Central Bank’s (ECB) policy meeting yesterday, where president Mario Draghi hinted their would be more stimulus to come.

In the early hours of yesterday afternoon GMT, the euro slipped down to buying $1.079, as the news from the ECB policy meeting filtered through.

As evening time arrived GMT, the euro had hiked itself up to buying  $1.088, possibly as the selling pressures had increased.

Through the night, the euro began to slip again, and is now currently buying $1.084.

In a statement after the ECB gathering, Draghi was clear that the bank’s governing council, would “review and possibly reconsider”, monetary policy in March.

Euro area rates will also continue to stay at the record low 0.5%, for what he describes as an extended period.

The banks’ benchmark rate will also remain unchanged at its current 0.05% level.

Additionally the bank deposit rate was continued at 0.3%, the rate had been cut from 0.2% from the ECB Governing Council in December, to encourage more bank lending.

Euro Falls Against the UK Pound

Against the UK pound, the euro has precipitated down from buying £0.774, to the current level of £0.76.

The UK was bolstered this week by positive employment news, an the jobless total was reduced by a year on year 0.7%, from September to November, down to 5.1%.

Inflation Figures Revised Downwards From ECB Forecasters

In the latest quarterly survey of ECB professional forecasters, inflation expectations for 2016 have been revised downwards by 0.3%, down to 0.7%, a prediction mainly in response to the falling oil prices.

Inflation is expected to pick up again next year, and in 2018, increasing to 1.4% and 1.6% respectively.

The longer term inflation expectations for the year 2020 are that it will move further upwards to 1.8%. A figure which is still below the ECB target of 2% inflation.

It is thought by the participants of the survey, who are experts affiliated with financial or non-financial institutions based within the European Union, that inflation will rise from its current 0.2% level, due to economic expansion and monetary policy through stimulus.

As the euro has become weaker against major currencies throughout 2015, the lower exchange rates are likely to help exports boosting inflation.

This is despite the economic news from China this week, the euro area’s second largest export market, that their economy is currently growing at its lowest level for 25 years.

 

GDP Growth Estimates are Unchanged

The survey forecasters believed that economic growth in the euro area will be in the range of 1.7% to 1.8%, an unchanged view from previous evaluations.

Expansion in private consumption, and increased investment are thought to be the main drivers of economic growth.

Domestic demand will be anchored by the accommodative monetary policy, alongside the low energy prices.

As oil prices continue to slide, household incomes and the margins of business profits will be boosted.

All of these factors are expected to surpass the negative effects, of a slowing down in demand from the emerging markets.

Unemployment was also predicted to fall from its current 9.6% rate in the euro area, down to 9.4% in 2018, falling further to 9% in 2020.