Business World

Monday 15 July 2019

ECB eyes rate cut: Draghi sends euro lower, enrages Trump

US President Donald Trump. Photo: Evan Vucci/AP Photo
US President Donald Trump. Photo: Evan Vucci/AP Photo
Mario Draghi
Rate expectations: Federal reserve chief Jerome Powell will likely cut interest rate

David Chance

European Central Bank President Mario Draghi set out a path of rate cuts and more bond buying in a major speech on Tuesday. This pushed the euro sharply lower and sparked the ire of U.S. President Donald Trump, who accused Mr Draghi of manipulating the currency.

President Trump weighed in on Twitter soon after the ECB President spoke.

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"Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA," President Trump tweeted.

"They have been getting away with this for years, along with China and others."

Speaking less than two weeks after an ECB rate meeting that disappointed markets, Mr Draghi returned to his "do whatever it takes" mode of 2012 as he spelled out the central bank's response to poor growth and weak inflation in the Eurozone.

"In the absence of improvement, such that the sustained return of inflation to our aim is threatened, additional stimulus will be required," he told the ECB's annual conference in Sintra, Portugal.

Those comments, which economists said implied rate cuts before the end of the year and a return to the purchase of eurozone government bonds, caused the euro to fall by 0.3pc against the dollar to $1.1182, and pushed yields on eurozone bonds, which were already at record lows, even lower.

"We think the Bank will cut its deposit rate from -0.4pc to -0.5pc in December," said Andrew Kenningham, Chief Europe Economist at Capital Economics. "Finally, we forecast the Bank to re-launch its asset purchase programme next March, at a pace of €30bn per month."

Meanwhile, the U.S. Federal Reserve, headed by Jerome Powell, met on interest rates and is widely expected to signal the coming of lower interest rates.

One of the reasons Mr Draghi cited for the more aggressive stance was the effect trade disputes were having on the Eurozone, which is much more exposed to trade than any other bloc.

Last month, the U.S. Treasury put Germany, Ireland and Italy on a watch list for currency manipulation, one of the measures it uses to assess whether countries are taking advantage of the U.S. in trade.

Data released on Tuesday showed EU exports to the U.S. grew to €145.1bn in April - 11pc up on a year ago.

Ireland, where 28pc of exports go to the U.S., would be hit much harder than any other country by the imposition of U.S. tariffs, according to a recent study by the International Monetary Fund.

Irish Independent

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