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Draghi Says Monetary Stimulus Still Needed As He Notes Uncertainty Remains A Challenge
During the ECB’s Annual Report presented in European Parliament yesterday, Draghi told MEPs that the eurozone is not heading for a recession. Addressing the recent weakness in key data sets, Draghi said:
“The question we should ask is: Is this a sag or heading toward a recession? The answer we give is: No, it’s a slowdown, which is not headed toward a recession. But it could be longer than expected.”
Investors have been growing increasingly concerned over recent months as data has continued to trend lower across a range of key indicators despite continued optimism from the ECB. However, with Draghi acknowledging in December that risks are “starting to tilt to the downside”, many have been questioning whether the ECB was premature in ending its QE program.
Draghi Remains Optimistic
However, Draghi chose to reaffirm his message of optimism during the parliamentary address saying:
“We still see a situation where consumption is still expanding, relatively strong, supported by our monetary policy, export growth is still good and the labor market keeps on being very strong,” Draghi said. “All this is happening at lower and lower growth rates.”
Stimulus Still Needed
The ECB president confirmed that the central bank plans to keep rates at current levels for some time along with reinvesting income from maturing debt, saying, “A significant amount of monetary-policy stimulus is still needed to support the further build-up of domestic price pressures and headline inflation developments over the medium term.”
Ahead of the upcoming January 24th ECB meeting, which will be the first meeting since the end of QE, Draghi concluded by saying “For the time to come, it’s going to be a continuing uncertainty that changes nature… This has a cost – the cost is lower confidence. Lower business confidence, lower consumer confidence. That’s why we are now assessing the situation.”
The lack of momentum in EURUSD is clearly visible in the choppy and stagnant price action of recent weeks. For now, EURUSD continues to grind higher in a corrective bullish channel which for now is focused on a continued slow move higher.