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Eurozone inflation rises to target as economy improves

Eurozone inflation rises to target as economy improves

The euro dipped against the US dollar on Thursday after European Central Bank chief Mario Draghi said policymakers did not discuss removing the bank's easing bias on monetary policy, while the dollar jumped against the Swedish crown after the Riksbank extended its bond-buying, Reuters reported.

A Le Pen victory on May 7 could unsettle financial markets since she has advocated taking France out of the shared currency union.

A record-setting rally in world stocks ran out of steam on Thursday, with unconvincing United States tax-cut plans cooling investors' spirits and caution setting in as the European Central Bank (ECB) met.

Draghi was careful to avoid talking politics, claiming that the outcome of the first round of the French Presidential election had had no effect on the bank's discussions and decisions. "We have not seen sufficient evidence to alter our inflation outlook".

Prices rose more than expected in April, with the CPI measure rising to 1.9% year on year - in line with the ECBs target of below but close to 2% - and the core reading jumping 0.4% to 1.2%.

However, the bank said it intends to keep interest rates on hold at 0.00 percent, as concerns over inflation levels continue to weigh on European economies. Reducing liquidity in interbank lending is the current preference for regulators as they try to control systemic banking risk without stifling economic growth.

The statement from the bank's 25-member governing council Thursday gave no signal that the bank was getting ready to say when it might taper off its extraordinary support for the economy.

USD  CAD 4 Hours Chart

Bets of a "Frexit" plunged and many traders quickly began to expect a bright year was ahead for the Eurozone economy, with some suggesting that the European Central Bank could begin to show a more hawkish outlook as soon as this week.

The ECB does not seem to want to take any chances still. Analysts consider that wording a way of discouraging investors from speculating about the end of the stimulus - which might prematurely drive up market interest rates, blunting its intended benefits.

Expectations for inflation in 2021 are meanwhile holding steady at 1.8 percent, just at the ECB's inflation objective.

From April, the central bank has reduced measures created to pump cash through the financial system and encourage banks to lend to businesses and households, cutting its monthly purchases of government and corporate bonds from 80 to 60 billion euros (The US $65 billion). Today's data could show tentative signs that inflationary pressures are returning.

Mario Draghi has repeatedly said the European Central Bank will wait until core inflation, which ignores the effect of volatile components of the price index, starts to show a sustained upwards movement.

He added that inflation in the 19-nation bloc was still not high enough to raise interest rates.


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