QE to run until ECB sees sustained inflation pick up. As expected Draghi acknowledge the improved growth outlook saying downside risks have diminished further, but at the same time he stressed that the very substantial degree of monetary accommodation is still needed and that the ECB needs to see through transient inflation developments. Against the background Draghi stressed that QE can still be extended and/or expanded. No surprises so far as Draghi justifies the decision to fend off the demands of the hawks and maintain the easing bias – at least for now. And as usual the ECB stressed that the sluggish implementation of structural reforms remain one of the downside risks to the economic outlook. Interestingly, Draghi focused on energy and food prices in explaining the drop back in March headline HICP and left out the Easter effect, which already saw Spanish and German headline rates jumping higher again today, which is likely to be followed by a similar jump in the Eurozone rate, due tomorrow. Still, while Draghi doesn’t admit that, the easing bias remains mainly an insurance policy against political risks, and when the French presidential election is finally out of the way, the ECB could change its tune in June.
The dollar largely shrugged off the mix of data, where claims were higher than expected, and durable orders beat forecasts. USDJPY remains near 111.40, while EURUSD reacted to the Draghi press conference, moving to session highs of 1.0932 as the ECB chief said economic downside risks have diminished, noting the economic recovery is increasingly solid. EURUSD is likely to find resistance to year’s high, at 1.0950.
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