Mario Draghi’s comment that the eurozone still needs “an extraordinary amount of monetary support” have kept the euro under pressure in Asian trade.
The president of the European Central Bank yesterday told European lawmakers in Brussels he was “firmly convinced” that the bank should stick with its support measures, including €60bn of monthly bond purchases to help prop up the currency bloc’s economy.
That disappointed some in the market who took the view Europe’s broadening economic recovery might warrant dialing down the ECB’s quantitative easing programme in coming months.
“It’s now only a week out from the ECB meeting and you can’t get much clearer than that,” David de Garis at National Australia Bank said of Mr Draghi’s comments that levels of labour utilisation were still recovering and inflation needed to return and stabilise at levels close to 2 per cent.
Mr de Garis continued:
The ECB will then unveil its new inflation forecasts; an about turn from the ECB signalling a winding down now of QE would be a big surprise to the market. Even the more hawkish Bundesbank President and ECB Governing Council member Jens Weidmann recognised that internal Eurozone price pressures beyond volatile energy are still muted but that it is legitimate question to raise of when to normalise policy.
The euro was down 0.3 per cent at $1.1129 in late Asian trade, following a 0.2 per cent fall on Monday in the wake of Mr Draghi’s comments. The single currency is now eyeing a fourth straight day of declines, for the first time in a fortnight, and having reached an eight-month high last Monday.
Among G10 currencies, Norway’s krone and Sweden’s krona were fractionally worse. The British pound was down one-quarter of 1 per cent at $1.2808, giving up nearly all of yesterday’s gain.
European markets were also spooked yesterday by comments from Matteo Renzi, the former Italian prime minister, who said in a weekend newspaper interview that it would make sense to get a national election out of the way in September, around the same time as German elections. Italian stocks and bonds sank on Monday at the prospect of an early election.
UK traders return after a public holiday on Monday.