Euro Poised to Take Its Cues From Draghi's Response to Turmoil

  • Investors await potential easing signals at press conference
  • ABN Amro expects ECB to cut deposit rate in March, June

The euro was little changed against the dollar after the European Central Bank kept its main interest rates unchanged, as predicted by every strategist surveyed by Bloomberg.

The shared currency was about mid-table against its 31 major peers as traders prepared for ECB President Mario Draghi’s press conference to explain the decision in Frankfurt, where they’ll pick through his remarks for any signals about policy easing at future meetings.

ABN Amro Bank NV says it expects the central bank to cut its minus 0.3 percent deposit rate by a combined 0.2 percentage point over its March and June gatherings as it seeks to boost growth and inflation amid a global market slump. Not everyone agrees.

“We might be in for a volatile session for the euro,” said Richard Kelly, the London-based head of global strategy at Toronto-Dominion Bank. “The challenge they’ll need to address today is how they’re interpreting the oil-price declines. The more they see this as an oversupply issue, the more it does little to nothing to their 2017 forecasts, which means the market could be getting ahead of itself thinking the ECB clearly will act again by June.”

The euro was at $1.0892 as of 1:16 p.m. in London, after jumping 0.2 percent immediately after the decision. It climbed most versus Russia’s ruble, which was undermined by oil’s drop below $28 a barrel. Draghi’s press conference will take place at 2:30 p.m. Frankfurt time.

On Hold

As well as keeping the deposit rate unchanged, the 25-member Governing Council held its main refinancing rate at 0.05 percent.

The euro has strengthened against every Group-of-10 currency apart from the yen and Danish krone this year as a stock-market rout and concerns global growth is slowing boosts demand for havens. While the euro region faces a number of challenges, its positive trade position means it doesn’t need to rely on foreign capital to finance its deficit.

The ECB, whose main remit is to ensure inflation meets its target of just under 2 percent, already cut the deposit rate and extended its quantitative-easing program in December. The measures disappointed some investors after Draghi repeatedly pledged action to boost the lackluster economy in the run-up to the gathering.

Hence the pressure on Draghi to signal that he’s not done with monetary stimulus, which tends to weaken a currency by expanding the money supply. Oil prices have fallen more than 30 percent since the Dec. 3 meeting, and core inflation remains stuck at 0.9 percent.

“There are downside risks to the economic outlook,” said Nick Kounis, head of macro research at ABN in Amsterdam. “All this suggests the ECB needs to go back to the drawing board.”

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