Euro falls as ECB hints at the end of quantitative easing

Emma Haslett
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Mario Draghi voiced concerns over trade war threats from the US. (Source: Getty)

The euro fell against against a basket of currencies this afternoon after the European Central Bank (ECB) kept interest rates on hold and took a step towards ending quantitative easing.

Having initially climbed, the currency dropped in late afternoon trading, falling 0.6 per cent against the dollar, to $1.2335, and 0.2 per cent against sterling, to £0.8918. However, the council also removed language from its statement suggesting it would take action in bond markets if growth it lower than expected.

Today it said net asset purchases will run until the end of September, or beyond if necessary.

It also raised its growth forecast to 2.4 per cent for 2018, up from 2.3 per cent it expected in December.

“The change in language in the ECB’s forward guidance suggests that if economic conditions continue to improve QE may well end in September," said Jacob Deppe, head of trading at Infinox.

Trade war looming

However, Deppe voiced concerns over threats of a trade war coming from the United States.

“But the potential outbreak of a trade war with the United States has tied Mario Draghi’s hands behind his back. Even if he had wanted to hint at tightening QE earlier than September as currently planned he now can’t.

“A trade war between the European Union and the US will damage both economies and until the threat of such a war subsides, the ECB will have no option but to keep monetary policy loose."

During a press conference after the decision was released, ECB chief Mario Draghi added that unilateral decisions on trade were "dangerous".

"We are convinced that disputes should be discussed and resolved in a multilateral framework," he said.

"If you put tariffs against your allies, one wonders who the enemies are."

Read more: Draghi to resist pressure on more hawkish tilt towards quantitative easing

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