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ECB's Draghi: Economic activity should gradually recover in 2013

The ECB Governing Council decided to keep the main interest rate unchanged at 0.75% at their December monetary policy meeting. Speaking at the press conference following the meeting ECB head Mario Draghi commented on the considerations underlying the decision.

The president suggested that inflation should fall below 2% in the coming months and assured that inflationary pressures should remain contained. He said that economic growth would remain weak in the “early part” of 2013 and recover very gradually, along with the improving situation on financial markets. The recovery would be supported by the ECB's accomodative monetary policy stance, better external demand and easier financial market conditions.

Mario Draghi commented on the the liquidity situation of EU banks, which recently repaid €140.6 billion of the €489.2 billion obtained through LTROs, which reflects the improvement in financial market confidence. He nevertheless urged EU officials to carry on with the reduction of “both fiscal and structural imbalances and proceed with financial sector restructuring measures” which should boost confidence further.

When asked about the recent appreciation of the shared currency and whether it could hurt recovery, the ECB chief answered that it could be an indication that confidence in the euro began improving. He added that the central bank would continue to closely monitor money market developments.

Forex: EUR/JPY nose dives on ECB's Draghi

Investors pressed the EUR/JPY to the downside as ECB's Draghi spoke at the 13:30 GMT press conference. The cross lost the 127.00 handle and dropped all the way to 125.56 low. The market is already down by -0.75%, as it quotes at 125.70 as of writing.
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Despite some initial volatility, GBP/USD has avoided the sharp reaction seen elsewhere as ECB President Draghi´s delivered his policy statement and subsequent press conference.
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