Draghi Says Exchange Rate Volatility Is Source Of Concern

Draghi Says Exchange Rate Volatility Is Source Of Concern

Draghi Says Exchange Rate Volatility Is Source Of Concern

The European Central Bank kept its ultra-easy policy firmly on hold on Thursday but ECB chief Mario Draghi will now face the hard task of addressing the euro's potentially damaging surge against the dollar.

Reports coming on Tuesday are expected to show 2017 was the bloc's best year for growth in over a decade, capped off by a strong fourth quarter.

The US Dollar sank lower in Asia Pacific trade as amplified existing selling pressure.

An unexpected uptick in United Kingdom weekly earnings in the three months to November prompted the Euro to Pound (EUR/GBP) exchange rate to slump sharply.

Draghi said Thursday that recently volatility in the euro's exchange rate was "a source of uncertainty" that merited "monitoring".

North of the border, the Bank of Canada kicked off 2018 by hiking interest rates, buoyed by robust job growth and having raised rates twice back-to-back previous year, even as uncertainty around the fate of the North American Free Trade Agreement lingers.

"Several members of the Council expressed concern, and this concern was also in a sense was broader than simply the exchange rate, it was about the overall status of worldwide relations right now", he said.

The dollar weakened further Thursday as the euro climbed to above $1.25 for the first time in more than three years.

Following are highlights of ECB President Mario Draghi's comments at a press conference after the bank's policy meeting.

It has set interest rates at historic lows, offered cheap loans to banks and bought tens of billions of euros per month in bonds in a bid to pump cash through the financial system and to businesses and households.

The region's four main currencies - the crown, the forint, the leu and the zloty - all eased slightly against the euro, led by the Hungarian unit, which shed 0.2 percent by 0845 GMT. Combined with the improved economic climate in the eurozone and the increasing confidence that inflation will rise, investors are bracing themselves for warnings that bond buying will not be extended past September and even conversations around interest rate hikes next year. Meanwhile we'll also get more economic data from the USA and Canada, with jobless claims and new homes sales coming from the former and retail sales the latter.

Thursday's USA economic data was mixed, with US jobless claims rising less than expected to a seasonally-adjusted 233,000, for the week ended January 20.

But predictions for tighter European Central Bank policy are adding to pressure on the currency and raising market bets for a rate hike as early as December, a move seen as premature even by the most hawkish of policymakers. We still see subordinated debt of solid European banks as one of the few segments that still generates a decent yield.

European Central Bank head Mario Draghi says the eurozone economy still needs support to keep raising the rate of inflation toward healthier levels.

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