Euro to US Dollar (EUR/USD) Exchange Stronger after Draghi comments

Frankfurt-Germany (Jan 25)  Yesterday the Euro closed local trading slightly stronger against the US Dollar as the President of the European Central Bank assured investors that Eurozone banks are taking action to support their balance sheets and help the currency bloc’s recovery progress.

During the Davos conference Mario Draghi stated; ‘There is this return of confidence. So ideally it is a much better situation to perform asset quality review and stress tests than it was in 2011 when the markets were in constant turmoil. Many things have happened to the banking system all over the world and to the European banking system as well.’

The Euro was already enjoying a fairly buoyant week against the US Dollar thanks to Thursday’s impressive PMI and consumer confidence reports and Draghi’s relatively upbeat view kept the Euro trading higher in a quiet news day for the US.

The comments also served to reinforce the difference the past 12 months has made to the Eurozone. At previous Davos gatherings the Eurozone crisis has been one of the top issues under discussion but the currency bloc’s tentative return to growth is helping to restore investor confidence and giving other economic concerns a chance to take centre stage.

Although Draghi admitted that the recovery remains fragile and patchy he pointed out a number of improvements which have occurred in the last 18 months, including rising financial stocks and falling government bond yields in Spain.

Concerns regarding the possibility of the ECB introducing negative interest rates to boost growth in the currency bloc have restrained the Euro’s upward momentum in recent months and with annual inflation falling well below the ECB’s target of close to 2% the central bank has stressed the importance of keeping fiscal policy accommodative.