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Wednesday, June 19, 2019

Trump cries currency manipulation over ECB talk of rate cuts

AFP, Frankfurt Am Main :
European Central Bank chief Mario Draghi sparked anger from US President Donald Trump on Tuesday, when his hint at future interest rate cuts lifted eurozone markets and pushed the euro down against the dollar.
"Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA," Trump said via Twitter.
"They have been getting away with this for years, along with China and others," he added.
Hours earlier, Draghi had told a conference in Sintra, Portugal that "further cuts in policy interest rates… remain part of our tools" as the bank looks to juice growth and inflation.
Eurozone policymakers had already discussed potential rate cuts at a regular meeting of the ECB's governing council in early June, but Draghi's Tuesday remarks were the first to catch markets' attention.
They sent Germany's DAX index of blue-chip shares back into the black from negative territory - up 1.5 percent around 2:45 pm (1200 GMT) - and pushed the euro down as much as 0.3 percent against the dollar, to $1.12, before rebounding slightly.
It was "the clearest indication yet that the bank will cut interest rates and relaunch its asset purchase programme in the coming months if… measures of inflation and inflation expectations remain very low," said Andrew Kenningham of Capital Economics.
From the start of his presidency in 2017, Trump accused trading partners like China and eurozone heavyweight Germany of currency manipulation.
Both countries, along with others like Japan and South Korea, remain on a Washington watchlist, the US Treasury department said last month, but have not been formally singled out as manipulators.
The ECB blames weakening economic growth on US trade conflicts with the EU and China, as well as the looming threat of a no-deal Brexit and slower performance from emerging economies.
Sluggish expansion has in turn kept inflation short of the central bank target.
At 1.2 percent in May, price growth was well short of the ECB goal of just below two percent.
"In the absence of improvement, such that the sustained return of inflation to our aim is threatened, additional stimulus will be required," Draghi said.
Aside from rate cuts, other moves could include restarting "quantitative easing" (QE) purchases of government and corporate debt, which amounted to 2.6 trillion euros ($2.9 trillion) between 2015 and 2018.
After months of speculation about when North Atlantic central banks would raise rates, the slowdown has turned the conversation around.