EURUSD Gives Up Draghi Gains On “Protectionism” Concerns, Inflation Forecast Cut

ECB has unveiled its growth and inflation forecasts (modestly raising 2018 growth while cutting 2019 inflation expectations):

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  • ECB GDP Projections: 2018: 2.4% (Prev. 2.3%), 2019: 1.9% (Prev. 1.9%), 2020: 1.7% (Prev. 1.7%)
  • ECB Inflation Projections: 2018: 1.4% (Prev. 1.4%), 2019: 1.4% (Prev. 1.5%), 2020: 1.7% (Prev. 1.7%)

And that has taken the edge of EURUSD as Draghi warns “we can’t declare victory over inflation yet.”

Picking up on the trade war theme like in January, and anticipating several questions from the audience, Draghi spoke quite freely on trade, confirming he disapproves of trade tariffs.

  • DRAGHI: IF YOU PUT TARIFFS ON ALLIES, WHO ARE YOUR ENEMIES?
  • DRAGHI: CONCERN ABOUT THE STATE OF INTERNATIONAL RELATIONS

About the effects trade tariffs may have: “What will be the effect on the exchange rate? In the past when tariffs have been spoken about, USD has appreciated. The effect on confidence is the real problem – that will be negative both on inflation and outlook.”

The focus on trade impacted Draghi’s statement which went from this:

  • On the other hand, downside risks continue to relate primarily to global factors, including developments in foreign exchange markets. 

To this:

  • On the other hand, downside risks continue to relate primarily to global factors, including rising protectionism and developments in foreign exchange and other financial markets.

Nonetheless, Draghi echoed Bostic, saying that it is tricky to judge the extent of the effects at the moment, and that the ECB would need to know “whether or not there will be any retaliation”.



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EURUSD Gives Up Draghi Gains On “Protectionism” Concerns, Inflation Forecast Cut