Trump hits out at Draghi’s fresh stimulus signal
Speaking at the ECB’s annual symposium in Sintra, Portugal, Mr Draghi said the bank had “considerable headroom” to launch a fresh expansion of its €2.6tn quantitative easing programme and suggested it could, in the short term, target inflation of above its medium-term goal of just under 2 per cent for a limited period of time.
“We remain able to enhance our forward guidance by adjusting its bias and its conditionality to account for variations in the adjustment path of inflation,” he said.
In response Mr Trump suggested that Europe was engaging in currency manipulation.
“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,” the US president tweeted. “They have been getting away with this for years, along with China and others.”
The euro sank by around 0.5 per cent, reaching a low of just under $1.12.
The clash between Mr Trump and Mr Draghi comes as the US Federal Reserve prepares to discuss whether to cut interest rates in response to signs that the global trade war is hitting growth, with officials due to meet in Washington on Wednesday.
Mr Trump has expressed a clear preference for the Fed to cut interest rates, saying last week that the central bank is “very disruptive to us”.
This is not the first time Mr Trump and his administration have expressed concern about weakness in the euro. Early in his tenure, top White House trade adviser Peter Navarro said Germany used the euro to “exploit” the US.
Last month, the US Treasury said that Germany, Ireland and Italy, all euro members, “merited close attention to their currency practices”. That placed them on a list alongside China, where a potential burst of fresh currency weakness is seen as a risk to already-strained talks on trade.
Although Mr Draghi has previously signalled that fresh easing could be launched, investors had previously failed to react; however on Tuesday his remarks jolted markets. German government bond prices hit a record high, with yields on 10-year German Bunds sinking to minus 0.32 per cent, down by 0.07 percentage points on the day.
Yields fall when prices rise, and negative yields mean new buyers are guaranteed to make a nominal loss if they hold the debt to maturity.
Italian government bonds also rallied, with the 10-year yield reaching 2.119 per cent, down 0.175 percentage points to its lowest level since last year’s politically-driven sell-off.
Mr Draghi said indicators pointed to signs of “lingering softness” in the economy in the coming quarters, adding that if the outlook for inflation failed to improve then additional stimulus must be needed.
The bank could lower its policy interest rates — now at record lows of zero and minus 0.4 per cent. The ECB could also buy more government debt than previously thought by changing self-imposed rules that limit it to buying up to a third of any one sovereign’s debt, Mr Draghi said.
“If the crisis has shown anything, it is that we will use all the flexibility within our mandate to fulfil our mandate — and we will do so again to answer any challenges to price stability in the future,” he told the audience in Sintra.
Claire Jones in Sintra and Katie Martin in London