It’s been a turbulent couple of days for the Euro. Yesterday Mario Draghi’s speech was delivered in an upbeat manner at the European Central Bank (ECB) Forum in Portugal. This caused the Euro to react positively following what the markets interpreted as a bullish tone from Mr Draghi, in particular a softening tone on the ECB’s monetary policy.
Inflation has been and remains a concern for the ECB and as a result tools such as Quantitative Easing (QE) have been used in recent times in order to encourage customer spending. Yesterday’s comments from Draghi implied that inflationary pressures were easing and therefore less QE could be a possibility in the future.
Today however, the Euro’s strength was quickly wiped off after reports that the markets misinterpreted Mario Draghi’s comments yesterday. This highlights the volatility of the FX markets. According to reports, Mario Draghi will tolerate a period of weaker inflation, and will wait until after the summer before thinking of tightening monetary policy. However, with business and consumer confidence in the Eurozone on the rise many analysts are claiming that it’s a matter of when not if he will tighten monetary policy.
Mario Draghi’s comments may have caused the Euro to retreat temporarily, but how long will this weakness last is a more appropriate question to be asking in my opinion. Friday’s inflation data couldn’t have come at a more appropriate time for the Euro and will be watched intently to see if the weakening of oil prices have fed through into inflation. A slight retraction is expected, however if this is better or worse than expected I would expect to hear rumours surrounding monetary policy and therefore the Euro’s price affected.