Euro drops as Draghi signals ECB prepared for more QE

The European Central Bank held a policy meeting on Thursday. As expected, rates were left unchanged. But what the markets focused on was on the ECB Chief’s press conference. Mr Draghi delivered a clear signal that the Bank was prepared to bolster its asset-purchasing programme, should the recent market turmoil threaten the Eurozone’s economic recovery. His comments reminded investors of his “whatever it takes” remarks.

The ECB has already pledged to purchase €1.1tn of mostly government bonds, buoyed equities and bonds across the region.

The euro plunged by 1 per cent, aiding the region’s exporters and buying the ECB more space as it tries to direct inflation on a path towards its target of just under 2 per cent.

The ECB president acknowledged that no one on the governing council had called for a souped-up QE package during the talks at the central bank’s headquarters in Germany’s financial capital. “We’re not there yet,” Draghi said.

After presenting a set of downgrades to the ECB’s quarterly projections for inflation and growth, Mr Draghi warned that risks threatening both had increased since the forecasts were devised in the middle of last month.

“The cut-off date to the projections was August 12th. So the events that took place since then are a downside risk to the projections themselves,” he said referring to the global market sell-off that followed the devaluation of the renminbi.

As he spoke the euro dropped by nearly 1 per cent against the dollar to €1.11, as his dovish comments buoyed hopes of further central bank stimulus. The Eurofirst 300 stocks index strengthened further to 2.2 per cent and 10-year benchmark Eurozone government bond yields nearly all declined by several basis points.

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