Euro Retreats as Outlook for ECB Monetary Policy Becomes More Dovish

The euro became weaker against the US dollar and the British pound on Wednesday, following a report that raised expectations of a more dovish stance from the European Central Bank.

In a statement that followed the European Central Bank’s latest policy meeting that was concluded on March 9, the central bank appeared to signal a hawkish position from its monetary policy. ECB President Mario Draghi chose a less dovish tone in a press conference that was held the same day, as he spoke about the current and future outlook of interest rates and quantitative easing.

The comments had supported the euro, as investors anticipated that the central bank might soon move to tighten its policy. However, a report that was published today stated that sources within the European Central Bank said that its policymakers feel their stance was misinterpreted by investors.

Instead, ECB officials believe that the bank will probably maintain its current quantitative easing program unchanged for the foreseeable future. The report said that the statement released on March 9 was aimed at signaling reduced risks, not at hinting a tighter monetary policy. The European Central Bank’s next meeting will be held on April 27.

The euro lost ground to US dollar and British pound following the report. Anticipation is now at its highest for the upcoming consumer prices data on Friday, which is expected to show that inflation either decreased or remained unchanged in March.

Lower consumer prices give more room for the European Central Bank to keep its low interest rates at the same level while it awaits growth to stabilize in the Eurozone. The central bank closely watches the core inflation index, which was at 0.9% in February. The ECB’s target for inflation is 2%.

EUR/USD traded at 1.0759 as of 19:10 GMT on Wednesday, from 1.0742 at 12:05 GMT, the pair’s lowest level since March 21. EUR/USD began trading today at 1.0812. EUR/GBP was at 0.8651, from 0.8628 at 11:50 GMT, today’s lowest level. EUR/GBP started the day at 0.8680.

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