The head of the European Central Bank (ECB) expects policymakers to have completed a review of its massive stimulus programme by next month – bolstering market expectations of a substantial easing in financial support.
Mario Draghi made his remarks following the conclusion of the latest meeting of the Bank’s governing council which left policy unchanged.
As a result, the euro extended its recent rally – jumping further against the dollar and the pound.
Market participants were watching for any hint on when the bond buying, or quantitative easing (QE) as it is also known, could be withdrawn. The programme has pumped more than €2tn into the economy to date.
At a news conference, Mr Draghi said that while economic recovery in the eurozone had been stronger than the Bank had expected, the euro’s strength “required monitoring” as it risked holding back inflation.
Much of that euro strength – up by 15% against the dollar alone this year – has been attributed to expectations of an end to the ECB’s crisis-era asset purchases, which are currently scheduled to run until the end of 2017.
As Mr Draghi spoke, the single currency was up 1% at $1.2039 – its highest level since early 2015 – while it was trading at 0.9173 versus sterling.
Separately, dollar weakness pushed the pound back above $1.31 again briefly – a five-week high.
Traders put the latest euro strengthening down to the Bank’s decision to lower its inflation forecast as it juggles the trade-off between the effect of its stimulus, which is meant to bolster inflation, and a strengthening currency.
At their latest meeting, policymakers upgraded their forecast for eurozone economic growth this year to 2.2% from 1.9%.
It would represent the fastest rate of growth for 10 years.
But Mr Draghi cautioned that Bank support for the economy remained important – confirming he expected interest rates to remain at their record lows for some time after any change to its wider stimulus.
Neil Wilson, senior market analyst at ETX Capital, said of the ECB president’s remarks: “Mission largely accomplished: Mario Draghi successfully guided the market to expect a tapering announcement in October without sounding hawkish.
“No move on QE yet but the ECB will outline the next steps for monetary policy at its next meeting in October.”