Shares fall as Draghi remarks keep euro running

Robyn Valdez
January 28, 2018

"US Treasury Secretary Mnuchin's latest comments clearly signalled a shift in the US forex policy, reinforcing negative dollar sentiment", he told AFP.

But a strengthening euro is taking the edge off that trend; a stronger currency tends to pull consumer prices lower as import costs are reduced. Those remarks broke with a twenty-year US policy of speaking in favor of a strong dollar.

At 18:00 GMT the FxWirePro's Hourly Strength Index of Euro was slightly bullish 58.4049, while the FxWirePro's Hourly Strength Index of US Dollar was highly bearish at -101.109.

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Draghi went on to say: "The recent volatility in the exchange rate represents a source of uncertainty.with regard to its possible implications for the medium-term outlook for price stability".

Even as the euro zone economy roars ahead, a strong euro threatens to dampen inflation and endanger the work done by years of unprecedented stimulus, probably forcing Draghi to pour cold water on rising expectations that the European Central Bank is speeding towards an interest rate hike.

Exchange rates are determined by many factors such as trade flows and central bank policies.

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However, the euro has continued to make gains against the U.S. dollar as continued strength in eurozone domestic economic data has prompted speculation that the European Central Bank could adopt a more hawkish stance this year.

"The most interesting thing for this meeting will be exactly how they are going to try and clarify some of their comments that came out after the December minutes that were interpreted as hawkish", said Alessio de Longis, portfolio manager for OppenheimerFunds' global multi-asset group.

The markets wait the press conference of the ECB President Mario Draghi about how long the institution will retain its stimulus program by buying assets against the backdrop of the strong economy at the moment. The eurozone is expected to have grown 2.4 percent past year, while unemployment has fallen to 8.7 percent from a high of 12 percent in 2013. Also, it did not make any changes to its "forward guidance".

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The purchases pump newly created money into the economy to raise inflation and growth in the wake of the 19-country eurozone's crisis over high debt in member states like Italy and Greece.

Other reports by Info About Network

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