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This article is originally referred from FXPrimus Special Report.
Euro recorded its largest weekly loss in 19 months after June 14 ECB news conference and, although EU President Mario Draghi reiterated an end of QE in December, he added that interest rates will be changed depending on what is the state of the convergence process and as long as
“inflation remains aligned with ECB’s current expectations of a sustained adjustment path”.
Interest rates were held steady in June 14 meeting.
German Yields started trading downwards following the announcement, dragging US Yields back below 3.0%, at 2.90%, while German Yields fell to 0.39%.
For the period until summer 2019, the ECB has to keep sufficient flexibility.
This signals that a rate hike may not be seen before Q4 2019, unless if in September meeting, as the final decision will depend not only on a “sustained” inflation but also on other downside risk factors, such as trade tensions and other risks linked to economic slowdown.
On June 15 and following the ECB’s announcement, Eurostat reported Eurozone’s Final CPI figures for the month of May.
Eurostat posted a final inflation number of 1.9% compared to a previous figure of 1.2%, reviving the possibility for tightening, while since then, markets welcomed June’s reading as inflation hit the 2.0% inflation target YoY on the July 18 event.
With inflation supporting ECB’s plan to end QE by end of 2018, ECB’s goal in order to effectively hike rates would be a close to 2% inflation rate over the medium term.
That of course contains other implications, such as the price of Oil and the rise in energy cost, which may not be a good driving factor in the medium term.
Original Source: FXPrimus Special Report