On Tuesday, Mario Draghi stated that he is ‘’confident’’ that the European Central Bank’s policies will stimulate inflationary pressures and that the eurozone will fully recover from the perils of the financial crisis.
The president’s hawkish sentiment sent the EURUSD to a 2017 high, as investors weigh in the likelihood of a tightening of monetary policy. The euro climbed 0.7% against the dollar as Draghi spoke. As London trading veered towards a close, the currency pair reached the 1.30 mark for the first time since September.
The ECB president brushed off lagging inflation, pinning the stagnant data to global factors and the changing face of the labour market which has alleviated pressures on companies to raise wages.
Draghi described the weak inflation as ‘’temporary’’ predicting that the ECB will reach its target of just under 2% in the medium term.
Although, the ECB president also called for caution, acknowledging that inflation was “not yet durable and self-sustaining” and going on to admit that “policy needs to be persistent and we need to be prudent in how we adjust its parameters to improving economic conditions.”
Regardless, the shift in rhetoric signals a step towards tapering quantitative easing next year. The program with the aim of stimulating growth and inflation will exceed €2 trillion this year.