“European Central Bank will have to gradually adjust its monetary policy to the prevailing economic conditions” – said Mario Draghi, who opened the Central Banking Forum in Sintra this morning. The words of the President of the ECB were read as a sign of future rate hikes in the euro area. Effect? Easy to predict.
EUR/USD gained 60 pips in just a dozen minutes of Mario Draghi speech which was broadcasted live on European Central Bank channel, and the recording of the entire opening ceremony of the Forum is available below:
As usual, President Draghi tried to sound as dovish as possible in his speech, but was forced to admit that deflationary pressures in the eurozone were ending, and the pace of economic growth is currently at a higher level than predicted.
At the same time current economic recovery in Europe does not need to lead to immediate rate hikes. The ECB can change its attitude from dovish to neutral – said Draghi trying to cool enthusiasm of buyers. However, these efforts did not help to much. EUR/USD which at around 9:15 failed to effectively overcome psychological resistance at 1.1200 is currently 50 pips above this level:
Also John Williams of the San Francisco Fed supported EUR/USD growth. Although he acknowledged that inflation levels in the States should exceed 2% already next year, and America has long since crossed full employment, he refrained from more hawkish comments.
Surprisingly, Williams has been one of the Fed’s biggest optimists and has so far indicated the need for a more dynamic path of rate hikes. Williams also acknowledged that there is a risk of slowing down economic growth in both the US and other developed countries. The drops in dollar valuation were not as spectacular as EUR appreciation, but the USD/JPY is continuing its downward trend during the Asian session:
