Euro boosted by ECB inflation forecasts

The euro has strengthened to a two-month high after the ECB offered no indication of future easing.

The euro has advanced 0.93% against the dollar, rising to 1.3861 by mid-afternoon in New York, after earlier trading as high as 1.3873, the highest level for the EUR/USD currency pair since the end of December last year.

The shared currency’s gains came after ECB President Mario Draghi delivered a cautiously positive press conference following the central bank’s decision to make no change to its key interest rates.

Mr Draghi revealed that the latest projections by economists at the ECB ‘support earlier expectations of a prolonged period of low inflation, to be followed by a gradual upward movement in HICP inflation rates towards levels closer to 2%.’ Inflation is projected to hit 1.7% by the last quarter of 2016.

The ECB also sees growth as being slightly higher than previously thought. It now forecasts annual real GDP growth of 1.2% in 2014, 1.5 % in 2015, and 1.8 % in 2016. Mr Draghi described incoming data since the last policy meeting as being ‘by and large on the positive side’, pointing to the composite PMI hitting a two-and-a-half-year high as an example, as well as the gap being closed in consumer confidence between stalwart Germany and the economically-stressed countries in the euro region, such as Spain and Italy.

These signs that perhaps conditions are normalising, along with no evidence of deflationary risks on the horizon, would seem to decrease the possibility of the ECB taking action to further stimulate the eurozone economy. As such action would be expected to debase the currency, this reduction in likelihood has proved price supportive.

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