In his press conference following the ECB monetary policy meeting, President Draghi stated that volatility in the FX rate was a source of uncertainty and that the impact of currency rates on price stability needed to be monitored.
He reiterated that the exchange rate is not a policy target, but that it is very important for growth and inflation targets.
He declined to make any direct comment on the exchange rate’s level, although he confirmed that the ECB staff projections assumed a EUR/USD rate of 1.18.
On inflation, he commented that underlying inflation had ticked up, but remained subdued.
The ECB head remained confident surrounding the growth outlook. Looking at the staff projections, the 2017 GDP growth projection was increased with no change for the following 2 years. The 2018 inflation forecast was cut to 1.2% from 1.3% with the 2019 projection shaved to 1.5% from 1.6%.
According to Draghi, concerns over the exchange rate this time around were more widespread than at the previous meeting with most members now expressing potential concerns over trends.
Looking at the potential recalibration of monetary policy, the topic of sequencing was not discussed and that discussion of the quantitative easing plans was very preliminary.
According to Draghi, there was no discussion of changing bond buying limits.
Draghi stated that financial conditions had undoubtedly tightened given the Euro appreciation, although they were still supportive.
The most likely time for a majority of quantitative easing decisions to be taken was in October, although the only pledge was to take action in autumn and there was a reluctance to make any commitment to a specific date.
The comments on quantitative easing were broadly in line with expectations, but there was no strong verbal protest against Euro strength and the inflation forecasts were cut slightly less than expected.
The absence of direct warnings over the Euro’s level and smaller than expected cut to the inflation forecasts pushed EUR/USD above the 1.2000 level with a peak above 1.2050 before a correction.