The euro fell significantly in tandem with the US dollar and lost a number of positions against other world currencies. Despite the fact that the growth rate of the eurozone economy accelerated at the end of 2018, the European Central Bank revised its attitude towards future monetary policy, which led to the weakening of the euro.
According to the EU Statistics Agency, the eurozone's GDP in the 4th quarter of 2018 grew by 0.9% on an annualized basis, after increasing by 0.6% in the 3rd quarter. The initial estimate was at 0.8%.
The report indicates that the main support to the economy was provided by export growth, increased government spending, and higher consumer spending. Compared with the 4th quarter of 2017, eurozone GDP grew by only 1.1%.
Let me remind you that quite recently, the Organization for Economic Cooperation and Development lowered its forecast for economic growth in the eurozone in 2019 to 1%, while initially it was expected to grow by 1.8%.
The key moment of yesterday was the decision of the European Central Bank to leave the refinancing rate unchanged, at the level of 0.0%.
As expected, the central bank announced a new round of cheap long-term lending to European banks. The program is called TLTRO, and the first loans for banks will be available as early as September of this year. Their repayment period will be 2 years.
In its report, the ECB also lowered the forecast for the euro zone's GDP growth for the current year to 1.1%, whereas in December it was expected to grow by 1.7%. A review of monetary policy prospects is directly related to inflation forecasts. The ECB expects that the annual inflation rate in the current year will reach only 1.2% against an earlier forecast of 1.6%. Let me remind you that the target annual inflation rate is slightly less than 2%.
During his speech, ECB President Mario Draghi spoke in more detail about the changes that the regulator plans.
Draghi said that the deterioration in economic data indicates a further slowdown in economic growth in the eurozone in 2019, and a weakening economic impulse slows inflation to a target level. This suggests that the risks to economic growth in the eurozone are still biased to the downside.
The ECB still needs a significant degree of monetary stimulus, as recent data were very weak, reflecting low external demand and a number of other special factors.
Draghi also noted that the new TLTRO operations will help to ensure favorable conditions for bank lending, and the current TLTRO model fully reflects the changed economic conditions.
Well, the main thing that traders paid attention to and quickly began to get rid of the European currency was the statement that the planned timeline for raising rates in the advance indication was shifted from September of this year to December.
The material has been provided by InstaForex Company - www.instaforex.com
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