The euro climbed to its highest in nearly two weeks following remarks by European Central Bank President, Mario Draghi, who expressed confidence in the Eurozone economy’s recovery and the threat of deflation receding.
At the ECB’s annual policy forum in Sintra, Portugal, Draghi specifically stated that ‘Deflationary forces have been replaced by reflationary ones’, signaling his optimism for the euro area economy’s outlook. In addition, he didn’t appear to be worried about recent weak inflation data, partly attributing them to global factors. He did communicate, however, that ‘considerable’ central bank support is still needed as inflationary pressures are ‘not yet durable’.
Turning to reaction in the forex markets, euro/dollar jumped to reach the near two-week high of 1.1236 within a ten-minute time frame of Draghi starting to give his speech. The pair managed to maintain positive momentum to hit a fresh high of 1.1264 later in the day. It was trading at 1.1186 before the speech.
The positive comments by Draghi will add to speculation that the ECB is soon to start discussing its plan to normalize policy as it exits its monetary stimulus program. The central bank currently props up markets by engaging in monthly asset purchases to the tune of 60 billion euros. In its monetary policy meeting earlier in the month, the Bank maintained its accommodative stance but dropped its promise to cut interest rates should conditions worsen. The Bank will hold its next policy meeting on July 20.
