Exchange Rate 'Volatility' Is 'Source of Uncertainty': Draghi


Even as the euro zone economy roars ahead, a strong euro threatens to dampen inflation and endanger the work done by years of unprecedented stimulus, probably forcing Draghi to pour cold water on rising expectations that the European Central Bank is speeding towards an interest rate hike.

The euro was around 0.8% higher against the U.S. dollar as at 1410 GMT.

The ECB made a decision to keep interest rates in the eurozone on hold, with the focus now on ECB president Mario Draghi's usual press conference following the release of the statement on rates.

"The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases", the central bank said in a statement.

This is because a stronger exchange rate is expected to hurt exports and company earnings.

Draghi's swipe came after Mnuchin said this week that "obviously a weaker dollar is good for us as it relates to trade and opportunities". But rapid economic growth and the likely end of the bond buys later this year justify some currency strength.

"If you take the overall stance of the USA administration, it's protectionist and still it's not clear what kind of dollar the president and the Treasury want", said Vassili Serebriakov, FX strategist at Credit Agricole in NY.

However, with the dollar's late rally sterling fell 0.62 percent to $1.4152.

There is growing expectation that the program for quantitative easing will end after September. This was not enough dovishness for the traders and they began to push the euro higher as it rocketed through the 1.25 region and it seemed that it would only be a matter of time before it went towards 1.26.

The survey also confirmed Draghi's confidence in growth as the GDP projection for this year was raised to 2.3 percent from 1.9 percent three months ago.

"There was a lack of any forceful comments with respect to the recent euro strength", he said. Its rate of minus 0.4 percent on deposits it takes from commercial banks was also unchanged.

Policymakers argued that the European Central Bank should give up a singular focus on asset buys in the guidance and should raise the role of interest rates in policy accommodation. The GBP/EUR exchange rate dropped a cent and the EUR/USD rate moved to a 3 and a half year high. Or does it look at a healthy economy and conclude that its job is done?

The purchases pump newly created money into the economy to raise inflation and growth in the wake of the 19-country eurozone's crisis over high debt in member states like Italy and Greece.