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The Governing Council of the European Central Bank expectedly maintained the key interest rates unchanged during a meeting which took place on Thursday. The central bank commented on the situation in the European economic area and also on the recent developments in international trade and even the global economy.
A key takeout from the entire meeting was the proclamation that the ECB would extend its asset purchasing program past the initially set deadline, which means that the strength of the Euro would likely be devalued owing to the heightened flow of easy money into the economic circulation. The decision by the ECB to continue reinvesting into the economy by pumping even more capital into it would increase the liquidity levels of the markets, which in turn would support further economic expansion my making the European economy more competitive at the expense of a weaker Euro.
“The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase program for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.” [source]
The decision was ultimately reached after the observation of intensified risks to global growth since the time of the previous meeting of the Council in early June, and also because of heightened protectionists measures that are being implemented globally by some of the biggest economies, which impede free international trade.
In a media conference that was held after the meeting of the Governing Council was concluded, the President of the ECB Mario Draghi stated that:
“[..] softening global growth dynamics and weak international trade are still weighing in on the Euro area outlook. Moreover, the prolonged presence of uncertainties related to geopolitical factors: the rising threat of protectionism and vulnerability in emerging markets is dampening the economic sentiment, notably in the manufacturing sector. In this environment, inflationary pressures remain muted, and indications of inflations expectations have declined. Therefore, a significant degree of monetary stimulus continues to be necessary to ensure that financial conditions remain very favourable and support the euro area expansion”.
Overall, the ECB remains placid in its remarks without evidently feeling the need to directly address the recent allegations of Donald Trump, who accused the central bank in a series of tweets of unfairly meddling in the global economic processes by intentionally decreasing the value of the Euro to make it more appealing over the dollar to foreign investors.
The EURUSD pair reacted to the news in a volatile manner as investors and traders struggled to make out the likely ramifications for the global economy following the announcement of the prolongation of the asset purchasing program by the ECB. The price is currently trading around the fundamentally important support level at 1.11292 and the expectations for increased money supply in the European economy because of the prolongation of the reinvesting program, might be sufficient to make the price break below that support level and formulate a new bearish trend.
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