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Euro Plunges After Draghi Says ECB Could Cut Rates Again

James Hyerczyk
“Further cuts in policy interest rates and mitigating measures to contain any side effects remain part of our tools. And the APP (asset purchase program) still has considerable headroom,” he added.

The Euro reversed earlier gains and is now trading lower for the session after dovish remarks from  European Central Bank President Mario Draghi at the European Central Bank (ECB) Forum in Sintra, Portugal.

Just a short while ago, Draghi defended the tools that the organization has available, saying that its asset purchase program still has considerable headroom. Draghi also said that the ECB could cut interest rates again or provide asset purchases if inflation doesn’t reach its target.

“The European Treaty requires that our actions are both necessary and proportionate to fulfil our mandate and achieve our objective, which implies that the limits we establish on our tools are specific to the contingencies we face. If the crisis has shown anything, it is that we will use all the flexibility within our mandate to fulfil our mandate – and we will do so again to answer any challenges to price stability in the future,” Draghi said.

Draghi’s comments were a reaction to remarks from different policymakers on Monday who raised concerns over the strength of the tools available to the ECB to perhaps fight a recession or stimulate the Euro Zone economy. They weren’t actually questioning the number of tools, but rather there actual impact on the economy.

Draghi countered these concerns by saying, “We remain able to enhance our forward guidance by adjusting its bias and its conditionality to account for variations in the adjustment path of inflation. This applies to all instruments of our monetary policy stance,” he said.

“Further cuts in policy interest rates and mitigating measures to contain any side effects remain part of our tools. And the APP (asset purchase program) still has considerable headroom,” he added.

The EUR/USD is plunging because just two weeks ago the ECB took a hawkish stance by postponing its first-post crisis rate hike until mid-2020. This news drove the Forex pair into its highest level since March 22.

This article was originally posted on FX Empire

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