As expected, the ECB’s September meeting saw the bank keeping rates unchanged while announcing that QE purchases will be reduced by 15 billion EUR per month until year end at which point “subject to incoming data confirming the medium-term inflation outlook, net purchases will then end”. The ECB also reiterated its message that rates will stay at current levels “at least through the summer of 2019”.
GDP Revised Lower, Inflation Unchanged
The latest ECB macro-economic staff projections saw GDP growth revised lower compared with June for this year and next. GDP is forecast to rise 2% in 2018 vs 2.1% in June, 1.8% in 2019 vs 1.9% in June and unchanged at 1.7% in 2020. Inflation projection was left unchanged over 2018 – 2020. The bank highlighted that cost pressures are rising as labor markets are tightening pushing up wage growth.
With both the QE and rate decisions well sign posted ahead of the meeting, the main focus was on Draghi’s press conference following the meeting. Early on in his prepared remarks, Draghi was quick to highlight that “rising protectionism” and stress in both EM and financial markets have “gained more prominence recently”.
Key Questions From The Presser
The first question Draghi fielded immediately addressed the matter of QE with a reporter asking “why have you not confirmed asset purchases will definitely finish at the end of the year?”. Draghi replied saying “We haven’t elaborated on what’s in the text of the statement. Accommodation will remain significant even after the end of asset purchases through our reinvestment policy and forward guidance”.
Draghi was also questioned over the risks from EM with a reporter asking how worried the ECB is about developments in EM. Draghi replied saying “it is one factor that adds to the uncertainty in world markets but so far the spillovers from Turkey and Argentina have not been substantial”. Draghi went on to name rising protectionism as the top of the list.
In all, the meeting and conference passed as expected. Draghi kept the ECB on course by reducing QE and signaling the bank’s intention to cease QE at year end. In the conference, Draghi highlighted risks from rising protectionism and emerging markets as well as financial market volatility though highlighted that the ECB remains on course with its current path in the faced of broadly balanced risks to growth.
EURUSD was sharply higher in response to the meeting with price rallying back above the recent bearish channel that has framed price action. Price is now fast approaching the local key resistance at the 1.1731 level. Above that focus will be on the June high of 1.1848.