Shares rise, euro near 14-month high ahead of European Central Bank

Paterniano Del Favero
Luglio 21, 2017

Meanwhile, by suggesting it was uncertain whether the European Central Bank would discuss in September what it plans to do with its QE program next year, Draghi threw doubt on the idea that he would use an August speech at the Fed's annual Jackson Hole symposium to lay the groundwork for tapering.

The reason why little is expected right now: Draghi and top bank officials want to avoid a sudden market reaction that could prematurely send business and government borrowing costs higher before the phase-out starts.

In economic news, the euro area's current account surplus rose sharply in May to reach €30.1bn, versus a revised reading of €23.5bn for the previous month, as the deficit on the secondary income balance shrank from €18.6bn to €10.7bn.

On the other hand, if President Mario Draghi fails to adopt a more upbeat tone in comments to the press this could leave the Euro vulnerable to a sharp spike in downside pressure.

Expectations the central bank could scale back support for the economy have been growing in recent weeks, helping to strengthen the euro. He could hardly walk back the ECB's underlying confidence that the factors holding down inflation would eventually fade, provided the economy maintains its momentum. The purchases pump newly printed money into the economy in an effort to push up inflation, which is now at an annual rate of 1.3 percent.

Markets are now waiting for the post-decision news conference held by bank president Mario Draghi for any clues about the bank's plans.

Economists polled by Reuters expect an announcement from the European Central Bank in September, although a move this week is possible.

The danger, however, is that such expectations lead to even tighter financial conditions as the euro and yields rise, making it all the more hard to achieve the ECB's inflation target and providing a headwind to the region's strengthening recovery.

As a result the GBP EUR exchange rate remained biased to the downside, with the prospect of an imminent Bank of England (BoE) interest rate hike significantly diminished.

On the FTSE 100, EasyJet (EZJ) fell to the bottom of the index, down 6% at £13.33, despite the budget airline flagging profits would be higher than expected, at up to £420 million, but still below last year's £495 million.

The euro is up nearly 10% so far this year but and was a shade lower at US$1.1511 ahead of Draghi's news conference, having hit a 14-month high of US$1.1583 on Tuesday.

The central bank could also reduce purchases by a specified amount and then re-assess every three months or so.

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