by Vincent Mivelaz
The European Central Bank's press conference on Thursday ended as expected. Draghi’s dovish monetary policy is maintained, as investors got a confirmation that ECB interest rate is to remain at –0.40% and that asset purchasing program period could be extended up to September 2018 if economic conditions deteriorate.
No mention of increasing purchasing amount to EUR 60 billion were however communicated in the statement. Draghi underlined his concerns as to the increasing tensions that border taxes on steel and aluminium would have on the world economy and the slowing inflation within the euro zone (February Consumer Price Index Y/ Y estimated at 1.20% compared to January data given at 1.30% and continuously decreasing since November 2017 at 1.50%).
Since EU growth continues its expansion and is predicted to remain at a pace of 2.30% by the end of 2018, in line with December 2017 data, we remain confident that recent communications will give rise to QE interruption by September, in line with current ECB’s projections, on the way to further normalisation.
Accordingly, long-term treasury yields are expected to rise, which in turn should strongly affect EUR-denominated portfolio allocation, adding additional weights into fixed-income asset classes. Year-To-Date, Euro 2-year and 10-year Treasury yields increased by +7.85% and +39.60% in relative value.
Trading below the 1.23 range, EUR/USD decreased following higher than expected February NFP numbers in the US, largely above expectations, given at 313’000 (consensus: 205’000). US February unemployment rate remained flat at 4.10% (much lower than full employment rate estimated at 5%) while average hourly earnings Y/Y remain at 4.10%, confirming the scenario of a 25 basis points interest rate increase (from 1.50% to 1.75%) for coming March 21st FOMC meeting, as the convergence to normalisation strengthens.
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