While warning about demographic challenges to growth, the global recovery is improving, but like an increasing number of financial and business leaders, said European Central Bank President Mairo Draghi on Friday.
Noting its highest against the U.S. dollar since January 2015 after Draghi’s initial remark, the euro spiked 1 percent to a high of $1.1940.
“The global recovery is firming up,” Draghi said, according to prepared remarks on the European Central Bank website. He noted that in Europe and Japan, “the consolidation of the recovery is at an earlier stage” versus that of the U.S.
inflation is not yet converging to the central bank’s target and significant monetary accommodation is still needed, Draghi also said. The euro edged off session highs to trade near $1.192 after those comments.
“It would suggest that nothing is imminently forthcoming from Frankfurt,” said John Velis, vice president of Global Macro Strategy at State Street Global Markets.
“Of course, what’s missing, and what he has mentioned in the past, is that the strength of the currency has served as a break on demand and inflation in the euro zone,” Velis said. “Markets got the hint however, and the impressive spike in EUR immediately after his prepared remarks has now been blunted.”
Draghi did not comment directly on future ECB monetary policy while speaking at the annual central bankers’ meeting in Jackson Hole, Wyoming.
The central problem of “how to raise potential output growth” faced increasing challenges, the ECB president also said.
“Without stronger potential growth, the cyclical recovery we are now seeing globally will ultimately converge downwards to those slower growth rates,” Draghi said. “Slower growth will in turn make it harder to work through the debt and demographic challenges facing many advanced economies.”
Hints about when the ECB might begin tightening monetary policy by cutting back on its asset purchase program were expected by some from Draghi ahead of the speech at Jackson Hole. Draghi did not comment on how the central bank might adjust policy to the improving economy in the euro zone in a Wednesday speech in Germany.
Against the consensus Reuters estimate for 115.5, Germany’s Ifo economic institute said its business climate index edged down to 115.9 from 116.0 in July.
After Federal Reserve Chair Janet Yellen did not address future monetary policy in a Friday speech, the euro had already begun strengthening against the U.S. dollar earlier in the day. Yellen noted that regulations may need some adjustments and said that the financial system is safer now than it was at the time of the financial crisis about a decade ago.
(Adapted from CNBC)