On the foreign exchange market, the euro dropped to 0.5% after Mario Draghi’s statements, before recovering part of its losses and ending the day down 0.10% to $1.1357. In Europe, the ECB announced Thursday, as expected, the end of its massive asset purchase program (“QE”) at the end of this month, and did not report a rate hike in a near future. On the contrary, the European Central Bank has revised down its growth forecasts for 2018 and 2019 and its president, Mario Draghi, has been a little more pessimistic than before on the European economy.
The European Central Bank lowered its growth estimates for 2018 and 2019 in the euro area to 1.9% and 1.7%, respectively, against 2% and 1.8% previously expected. Beyond this, GDP growth for 2020 and 2021 is forecasted at 1.7% and 1.5% respectively, levels that remain modest.
The ECB has also revised its inflation forecast to 1.8% for this year (a slight increase from 1.7%), but slightly down for 2019, to 1.6% (vs. 1.7%). The ECB expects inflation of 1.7% in 2020 and 1.8% in 2021, levels that remain below its target of approaching 2%.
The single European currency had gained about 0.3% before the ECB’s announcements, anticipating call to throw its crisis-era stimulus programme into reverse. However, after confirmation of this information, the euro has been rapidly declining. For the ECB, the end of the “QE” is a first step towards a normalization of its monetary policy and thus an increase, eventually, of its key rates, a move that the markets do not expect until the end of 2019, even in 2020 given the economic slowdown in Europe. In its statement, the ECB said that key rates will remain at their current levels until ” at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2 percent over the medium term”.
The dollar index rose by 0.1% to 97.14 points. The pound, for its part, stabilized after Theresa May’s vote of confidence foiled Wednesday night. After jumping 1% on Wednesday to celebrate the victory, sterling was unchanged at $1.2629 Thursday night, pending the outcome of the new Brexit talks between the British Prime Minister and the EU.