The euro hit its highest point in almost two years in morning trading against the US dollar after European Central Bank (ECB) president Mario Draghi failed to stem its rapid rise in recent weeks.
Draghi struck a dovish tone at the meeting in Frankfurt, with no firm date given to an announcement on the future of the quantitative easing programme, but investors were not convinced.
The euro rose to highs of $1.1677 in Friday morning trading against the greenback, its strongest since August 2015.
It had rallied to almost $1.166 against the dollar yesterday afternoon from as low as $1.148 before the latest ECB monetary policy announcement.
Draghi emphasised that a tightening of financial conditions is the “last thing” the central bank wants. Tighter monetary policy from the ECB in the form of lower asset purchases would theoretically raise borrowing costs for businesses, threatening the still nascent recovery in the Eurozone.
The central bank left interest rates on hold, as expected, and did not discuss the tapering of quantitative easing asset purchases. The ECB is buying €60bn (£53.8bn) in bonds every month, but there is currently no plan in place for after the programme runs out in December.
Yet despite relatively clear admissions from Draghi that inflation has not yet risen far enough for the ECB’s liking, euro traders have apparently decided that tighter monetary policy is on the way.
Kit Juckes, global fixed income strategist at Societe Generale, said: “The ECB has decided, unanimously, not to take a decision about when to start slowing the pace of asset purchases until after the holidays. It hopes for peace and quiet, but if markets conclude that unless something bad happens, it's just a matter of time before the next leg of ECB normalisation starts, the euro may not wait.””
However, the next meeting in September may still be too soon for a move despite investor wishes, warned Chris Scicluna, an economist at Daiwa Capital Markets.
He said: “With the ECB president noting that the governing council had yet to task the relevant sub-committees with preparing precise policy options, the next meeting on 7 September, at which updated economic forecasts will be discussed, might prove merely to be another stocktaking exercise, with an eventual decision on policy perhaps now more likely to be finalised at the meeting in October or even December.”