Euro May Fall as ECB President Draghi Cools QE Cutback Bets

Euro May Fall as ECB President Draghi Cools QE Cutback Bets”

Mnuchin, speaking at the World Economic Forum in Davos said that a weaker dollar was good for trade, while also talking about new tariffs and trade pacts. Both reports though had little immediate impact on Treasuries, as the data, particularly new home sales, have done little to change expectations that the Federal Reserve will raise rates in March.

"The recent volatility in the exchange rate represents a source of uncertainty which requires monitoring with regard to its possible implications for the medium-term outlook for price stability", Mario Draghi said at the ECB's monthly press conference in Frankfurt.

Inflation is also years away from rising back to the ECB's target of 2 percent, so Draghi can hardly afford any big currency swings.

Earlier, the euro rose to its highest in three years after the European Central Bank showed little concern about the euro zone single currency's hottest run in almost four years. Its shares, however, reversed course after opening higher as investors took out profits in a stock that has risen around 80 per cent in the past year.

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The bank's governing council gathers as markets wait for clues from bank president Mario Draghi at a news conference on how long the ECB will continue its bond-purchase stimulus now that growth is strong. The region gathered momentum in January, with the Purchasing Managers' Index suggesting quarterly growth of 1 percent and German business confidence at a record high.

The Dow Jones Industrial Average .DJI rose 140.67 points, or 0.54 percent, to end at 26,392.79, the S&P 500 .SPX gained 1.71 points, or 0.06 percent, to 2,839.25 and the Nasdaq Composite .IXIC dropped 3.90 points, or 0.05 percent, to 7,411.16.

Draghi spoke after the bank left its stimulus levels and interest rates unchanged.

Speaking in Davos, Ms Malmström said many countries concerned about the Trump administration's stance on trade now want to do trade deals with the European Union - citing Japan and the Mercosur bloc of Latin American nations.

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Looking ahead to the rest of the day, we do not have any major news from the Eurozone but we have the advance GDP data from the United States which should bring in some volatility.

Even as the euro zone economy roars ahead, a strong euro threatens to dampen inflation and endanger the work done by years of unprecedented stimulus, probably forcing Draghi to pour cold water on rising expectations that the European Central Bank is speeding towards an interest rate hike.

Draghi noted that for the European Central Bank, the question raised by exchange rates volatility was whether it would have an effect on the eurozone's "inflation path". Capital has fled the greenback onbets that rosy global growth willsee more central banks follow the Fed's hawkish lead, making alternatives seem relatively cheap (and thereby attractive).

Jane Foley of Rabobank mentioned that "Draghi failed to surprise the market", and "The economic data is too strong", Most analysts also pointed that despite what Draghi said, the market and the whole Eurozone can still expect a tighter monetary policy.

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