SMM News: a number of ECB policy makers said on Monday that inflation in the euro zone is still at an unacceptable low and that the ECB will further relax its policies to boost price pressures if necessary. A few weeks ago, ECB President Draghi hinted at more stimulus measures.
As economic growth and inflation slowed for most of last year, the ECB has abandoned its plan to tighten policy, and policymakers are now discussing whether to cut interest rates further or restart the recently concluded 2.6 trillion euro bond purchase program.
But with interest rates already at record lows and the ECB's balance sheet at 4.7 trillion euros, critics say the effectiveness of the remaining tools is limited and further easing can only provide a modest boost
A number of policy makers support Draghi's stimulus commitment
In a speech at a meeting in Helsinki, the ECB's chief economist, Lien, and the governing body, Knott, Dekos and Rehn, all stressed the ECB's willingness and readiness to act.
Mr Rehn points out that central banks, including the ECB, should adopt a clear policy communication strategy, especially when inflation deviates from their targets for a long time, so that markets have no doubt that they are absolutely committed to achieving inflation targets in the medium term.
At present, the ECB is very similar to other central banks, operating in a new environment. In this environment, long-term trends such as ageing population, falling long-term interest rates and climate change have become key policy issues.
In the light of these changes, Mr Rehn reiterated his view that the ECB should conduct a broader assessment of its policy strategy, since the last assessment was more than a decade ago. Since then, the ECB has been forced to redesign its portfolio of policy tools.
Mr Rehn also refutes the view of some critics that the ECB has few policy tools left. The current assessment is that the package of policies is effective. If necessary, policies can be further relaxed to fulfil their mission, and the effectiveness of the policy tool portfolio means that monetary policy can be further loosened.
Knott, who is also the governor of the Dutch central bank, believes that economic growth is likely to slow in the second and third quarters of this year compared with the first three months of this year, and the rebound that emerged a long time ago seems to have been delayed. It is an indisputable fact that inflation is still too low, and the ECB is determined to act in the event of adverse circumstances.
Dekos, who is also governor of the Bank of Spain, said that in the short term, he is once again in the predicament of low inflation and low growth. The problem of weak price increases is not unique to the euro zone. As things stand, the world's leading central banks are trying to understand a potentially universal shift in the way prices are set.
The European Central Bank is expected to announce more stimulus measures
The ECB will hold its next policy meeting on July 25. Some analysts expect the ECB to announce more stimulus by then, while others believe action will not be taken until the September 12 meeting, when the ECB will release new economic forecasts.
The ECB's current deposit rate, at minus 0.4%, is already at an all-time low, not far from what is thought to be the "effective floor" of interest rates. With government borrowing costs already at record lows, further bond purchases may not help encourage eurozone countries to spend.
Over the past few years, the ECB has provided unprecedented stimulus to the 19-member eurozone and has succeeded in reviving the region's economy, but the central bank is now seeing its previous efforts fall short of global and, to a lesser extent, uncertainty about Brexit.
EURUSD remains technically bullish
EURUSD remains technically bullish and investors are expected to re-enter the market around 1.1260. As of 09: 45 Beijing time, the euro was at 1.1285 against the dollar, down 0.01% in the day.
Most G10 bond yield curves are close to zero, suggesting that only the US has the most room for monetary policy, and it is believed that interest rate differentials will have a negative impact on the dollar for some time.
Nevertheless, markets still need to deal with the flattening of the US short-term yield curve, which may provide some support for the dollar; Fed Chairman Powell has stressed the importance of the G20 summit, which has convinced markets that the Fed will only cut interest rates by 25 basis points in July. However, due to the impact of economic damage, we do not rule out the expectation of cutting interest rates by 50 basis points.
At the same time, the decline in capital spending suggests that employment will also be weak, and the dollar's rebound will be limited if the U. S. non-farm report is weak on Friday. EURUSD's downward support is in the range of 1.1310 to 1.1260; if this range is held, investors should continue to short the dollar, and the EURUSD upside target is expected to look further towards 1.1630.
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