European Central Bank leaves interest rates unchanged for now

Randall Padilla
January 28, 2018

Wanting to keep all options on the table, Draghi is likely to signal a concern about the rapid rise in the currency but will maintain that it is not a policy target, hoping to strike a balanced message until policymakers are ready to unveil their blueprint for winding down stimulus, economists said.

The dollar fell to $1.25 for the first time in more than three years, after US Treasury Secretary Steven Mnuchin claimed a weaker dollar was "good" for the world's top economy, as it boosted US trade opportunities.

A strong euro typically hurts European exporters whose products become less competitive against rivals producing in a weaker currency.

In his comments on Thursday, Draghi cited the repeated joint statements by worldwide finance officials in which they commit to refrain from lowering their currencies' exchange rates to gain trade advantage at the expense of other countries.

After a routine rate decision for the euro zone's central bank, Draghi spoke at a press conference Thursday, telling reporters that the recent volatility in the exchange rate is a "source of uncertainty".

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

One risk, however, is that other countries might retaliate by taking measures that lower their currency.

And, with European Central Bank president Mario Draghi having a fine line to tread amid an expanding economy and stronger euro, his statement and the Q&A session which will follow it, are widely anticipated by investors and market watchers.

"The ECB refrained from aggressively pushing back against the strength of the euro at their monetary policy decision.but also warned the USA against opening a Pandora's box of competitive devaluation", said William Adams, senior global economist at the PNC Financial Services Group. After the apparently "hawkish" minutes of the December meeting, there had been some speculation that the forward guidance on the asset purchase program might be altered, noted Lloyds Bank in a research report.

But that progress was stopped later in the day as Trump sought to play down the speech by the U.S. treasury secretary by saying that the dollar was bound to get stronger due to the strong economic data.

The monthly German IfO business climate index rose to 117.6 in January, from December's 117.2. 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.

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