The euro rallied after the ECB signalled it is in no rush to do more QE, although on the whole it was not a particularly hawkish-sounding Mario Draghi. EURUSD scaled the 1.06 handle but there was little in there for the bulls. The euro firmed but only to a level last hit on Monday.

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Deflation is no longer the concern for the ECB – prices are not rising fast enough to warrant tapering or higher rates, but the imminent risk of deflation has passed. That’s something of a watershed moment – the end of the beginning in terms of unconventional monetary policy tools perhaps.

Dropped from the ECB’s introductory statement to the press was the line: ‘If warranted to achieve its objective, the Governing Council will act by using all the instruments available within its mandate.’

Draghi said this was removed because the ECB wants to signal there is no longer the sense of urgency in taking further action. He also indicated there was a short discussion on removing the word ‘lower’ from the forward guidance.

But overall this was a pretty dovish Mario Draghi given the firming Eurozone economy – largely as expected. The ECB is optimistic but not very sure of itself.

Once again he said the ECB stands ready to increase asset purchases programme in size or duration. And he said there was no discussion of tapering – yet. Concerns about running out of assets to purchase may force the ECB’s hand soon enough, however.

The bank also said it expects interest rates to remain ‘at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases’. This was an important line and it was brought forward into the initial statement 45 minutes before the presser and that seems to have resulted in a bit less of the usual wild ride in the EURUSD exchange rate we see in that period.

However growth is being dampened by sluggish pace of structural reforms and risks remain tilted to the downside.

As expected Draghi stressed that there are no signs yet of convincing upward trend in underlying inflation. The outlook for inflation for 2019 is unchanged, although it is a touch higher for 2018.

There was a nod to wage growth – which is still too lacklustre to ensure underlying inflation is self-sustaining.

And there is the effectiveness of the policy – the ECB sees its accommodative stance adding 1.7% to inflation and growth – pulling the rug from under that leaves little left. The recovery is welcome but still not strong enough to support its own weight, the ECB is saying. This is one of the four criteria the ECB requires – a recovery that is self-sustaining and not just down to extraordinary monetary policy.

On the positive said, Draghi says there is increased confidence that expansion will firm and that the pass through from policy is supporting domestic demand, with rising employment having positive impact on household spending. Draghi also noted signs of stronger global recovery and trade. Growth projections are higher in 2017 and 2018.

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