ECB president says risks to economy diminished

ECB president says risks to economy diminished

ECB president says risks to economy diminished

Nearly six years into his term, the European Central Bank president was finally able to say on Thursday that the risks to growth are balanced. Results of the United Kingdom elections are due after USA markets close. According to the latest policy statement, the Governing Council expects "the key European Central Bank interest rates to remain at their present or lower levels for an extended period of time, and well past the horizon of the net asset purchases". This can indicate that money is not being channeled to the real economy at a rate it has been poured in the system through asset purchasing.

"We think the time is ripe for that in autumn".

The euro's medium-term view looks positive, supported by prospects for the European Central Bank to start heading towards normalising itsmonetary policy in coming months, analysts said.

Borrowers in Ireland with tracker mortgages and the Irish State have been among the big beneficiaries from the policy, seeing their interest bills fall to extraordinarily low rates for a sustained period. A provision that interest rates could go even lower might be dropped.

Mr Draghi's downbeat tone on wage growth and inflation bled into his commentary on the Governing Council's view that it no longer expects it might have to cut interest rates.

Better economic activity simply has not yet translated into stronger inflation rates. The year-over-year growth rate increased to 1.9% from the 1.8% recorded in the previous quarter and also above the previous estimate of 1.7%.

Meanwhile, pressure from politicians in fiscally conservative countries like Germany is mounting over the impact on savers of simultaneous low rates and rising inflation.

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The euro weakened 0.5 percent to trade at $1.1201 as of 4:14 Frankfurt.

Eurozone headline inflation in May was 1.4 per cent, down from 1.9 per cent in April.

The FTSEurofirst 300 of top European equities briefly hit a three-week low of 1,526.29 after the ECB said subdued inflation meant it would continue to pump more stimulus into the region's economy.

The Euro has enjoyed strenght of late as political headwinds have dissipated, even becoming the darling of fund managers and real money investors who elsewhere see an increasingly risky global landscape.

If it does, then the Euro is set to rise, with Canadian investment bank TD Securities, modelling such a scenario as a rally on EUR/USD to 1.1325/55. This level stands near the 1.1175 level in today's session and corresponds to the pair's 20-day moving average. It removed the possibility for lower rates and saw risks to economic outlook as balanced and not biased to the downside anymore, noted Nordea Bank. "However if their risk assessment remains unchanged, the currency could be brutally punished", says Lien. A break above has the potential to bring more buyers into the market, as this would result in a breakout above the spike high established on November 9th, at the time of the US Presidential election. In the United Kingdom later in the day the NIESR GDP estimate. will it be revised down?

"Mario Draghi should thus recall that there are no signs of a convincing upward trend in underlying inflation yet", Lemangnen predicted.

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