President of European Central Bank (ECB), Mario Draghi, has reiterated the commitment of the Union to the economic stability of the region by assuring investors in Frankfurt, Germany today that ECB will continue to implement easier monetary policy as a key to managing and controlling European economic recovery. A statement majority of analysts termed as cheaper Euro.
According to Enrique Diaz Alvarex, a currency expert at Ebury, “the euro will continue to weaken in the months ahead”, this is another imperative factor to sustain the Euro-Area economic stance going into 2016 because weaker/cheaper Euro currency allow overseas buyers, investors, hedge fund, etc. the opportunity to do business at a lower cost, subsequently boosting both manufacturing and exports.
Another key emphasis is the increase in its Public Sector Purchase Program limit from 25% to 33%. Although, Mario Draghi, said it is a measure to ensure continued smooth functioning of the program but at the same time it’s reinforced the ability of the Union to maintained full control over its purchases and its ability to work around market weaknesses to get things done.
Additionally, ECB lowered its 2015-2017 GDP and cut its inflation forecast for 2016 to 1.7% which is clearly below its price stability, this lower inflation will most likely compel the Union to increase its stimulus (QE) program going forward, since inflation is contained.
“Mario Draghi, gave a clear signal of additional quantitative easing in the coming months” said Nick Kounis of ABN Amro.
However, ECB concern is China’s economic slowdown as it continue to hamper economies and the confidence of market investors in all financial markets, which is also on the negative side and could dampen Central Banks effort to rescue their economies. It is generally believe that China will be key topic at the G20 meeting this weekend.
Based on this, we are favouring a gradual depreciation of the Euro common currency against other currencies with stronger economic outlook provided China’s devaluation remain at current rate.