Draghi says European Central Bank will do what it must to boost inflation

The comments today though are still a clear signal to the markets that the European Central Bank intends to provide additional stimulus when it meets in a couple of weeks, the only question now is what will it do and how far will it go? With a lack of fresh trading cues, many investors are factoring in the Federal Reserve’s decision to raise short-term rates in December, but remaining skeptical about the pace of monetary tightening thereafter. While not an explicit goal of the ECB, a weaker euro has been one of the major results so far of the bank’s stimulus and has provided a boost to eurozone exporters. It has been at a record low since the 2008 global financial crisis.

That means Europe and the Fed will be pulling in opposite directions.

It finished the day with a gain of 0.3 per cent to close at at 11,119.83, while the Paris CAC 40 dipped 0.08 per cent compared with Thursday’s close to finish the day at 4,910.97.

The trade-weighted euro has fallen 9 percent since shortly before the European Central Bank unveiled its trillion-euro stimulus program in January.

Whether the euro can move substantially lower next year will depend on, among other factors, how low the European Central Bank is willing to push the deposit rate, Nordvig said.

The euro also fell nearly half percent against sterling and 0.3% against the Swiss franc.

The clincher though is that a firm facing lower revenues and higher costs could lay off staff and contribute to a rise in unemployment.

ECB chief Mario Draghi said in a speech in Frankfurt that the central bank was ready to act to boost inflation and that it would review policy at the December meeting.

The ECB’s president added that the bank might change the level of its deposit rate – now negative in a bid to encourage banks to lend. Britain’s headline public borrowing rose to 8.2 billion pounds in October from 7.1 billion pounds a year earlier, higher than all forecasts in a Reuters poll that predicted borrowing of 6.0 billion pounds.

Draghi’s comments helped bring the euro down to around $1.07 from $1.09 before his comments.

A few think the euro’s drop has run its course and that Draghi will have to announce something big to keep a lid on it.

Despite further good economic news yesterday that would give the Fed more grounds to raise rates, including a fall in new applications for jobless benefits, USA stocks failed to gain traction with the Dow down slightly in midday trading.

“There is this sense that the downtrend in euro-dollar is already getting a little exhausted”, said Jane Foley, senior currency strategist at Rabobank worldwide in London. That puts pressure on Draghi.