EUR/USD Undermined by Draghi’s Suggestion that Policy Will Remain ‘Reactive’
The Euro US Dollar (EUR/USD) exchange rate tumbled over half a cent on Thursday afternoon following comments by European Central Bank (ECB) President, Mario Draghi.
At the time of writing the EUR/USD exchange rate remains largely unchanged from this morning’s starting levels, leaving the pairing close to its worst levels this week.
Euro (EUR) Slides as ECB Strikes Cautious Tone
After initially surging yesterday as the ECB dropped its easing bias from its policy statement, the Euro suffered a sharp drop in the wake of Draghi’s press conference shortly afterwards.
While markets had hoped that the drop of its pledge to increase bond purchases was a sign of a more bullish ECB, Draghi’s comments quickly undermined this sentiment.
Draghi struck a decidedly more cautious tone as he said the ECB’s monetary policy would remain ‘reactive’ amid an outlook of subdued Eurozone inflation.
Chris Scicluna, head of economic research at Daiwa Capital Markets said;
‘They toned down the easing bias but there is still a willingness to ease and the tone of Draghi’s comments was still dovish, stressing that there is still not a convincing uptrend in inflation.
He also talked about the impact a trade war could have… He is a dove and it’s clear he still wears the trousers on the Governing Council.’
Draghi’s dovish tone also indicates that it is highly unlikely that the ECB will make any overtures towards raising interest rates this year.
US Dollar (USD) Subdued After Busy 24 Hours for Trump
At the same time the US Dollar is a holding pattern this morning as markets remain cautious following Trump’s signing of an order introducing trade tariffs on metal imports.
While Trump softened his stance slightly by exempting Canada and Mexico from the tariffs there is still considerable concern that the move may still spark a wider global trade war.
On top of this markets are also mulling over the news that in a dramatic de-escalation of global tensions, Trump has agreed to meet with Kim Jong-un later this year.
EUR/USD Forecast: US Employment Data to Bolster the US Dollar?
Looking ahead the Euro US Dollar exchange rate may tumble again later this afternoon as the US publishes its latest payroll figures.
Economists forecast that non-farm payrolls will have seen another robust increase of around 200,000 last month.
It is hoped that this in turn will propel the US unemployment rate to strike a new 17-year low of 4%, likely helping to strengthen the US Dollar.
Meanwhile with a quiet week ahead in terms of data EUR investors may direct their attention back on Italy where Sunday’s election resulted in a hung parliament.
Analysts currently suggest that a coalition between the Five Star Movement (M5S) and Democratic Party is the most likely outcome to end the current stalemate, something that may weigh on the Euro given the M5S party’s history of Euroscepticism.
