ECB President Mario Draghi points to high income inequality, defends ultra low interest rates

Fundamental Analysis

EUR

"Draghi pouring water on expectations of reducing monetary stimulus, that saw the euro then start to weaken."

— Douglas Borthwick, Chapdelaine Foreign Exchange

The European Central Bank President Mario Draghi reported on Tuesday that in order to overcome Europe's income inequality authorities should focus more on education, innovation and investment in human capital. According to the ECB President inequality in the Euro zone grew markedly since the last global financial crisis. Thus, governments should consider adopting policies aimed at redistributing wealth. According to data from Eurostat, the inequality level has increased sharply since the crisis in countries like France and Spain. The highest level of income inequality has been registered in Greece, Spain and Portugal. Apart from that, Mario Draghi said that ultra low interest rates helped to boost job creation, economic growth and benefit borrowers. Moreover, the ECB President said that a faster pace of monetary policy tightening would likely lead to a new wave of recession and boost income inequality in the region. Following these dovish comments, the US Dollar hit its one-month high against the Japanese Yen and rebounded sharply against the Euro, as the probability of a monetary policy stimulus reduction diminished.

USD

"We see the core data as consistent with soft business investment in the second quarter."

— Blerina Uruci, Barclays

Orders for US-made durable goods dropped more than expected last month, pointing to a slowdown in the manufacturing sector. The Commerce Department reported on Monday that durable goods orders fell 1.1% in May, following the preceding month's downwardly revised drop of 0.8% and falling behind expectations for a 0.5% decline. In the meantime, core durable goods orders rose just 0.1% last month after dropping 0.5% in April, whereas analysts anticipated an increase of 0.4% during the reported month. Monday's data combined with the prior week's retail sales and inflation figures suggested that the economy failed to regain positive momentum in the June quarter despite the recent sharp drop in the jobless rate. Back in the Q1, the US economy expanded at an annualised 1.2% pace. Yesterday's data also showed that orders for machinery climbed 0.6%, while shipments dropped 0.3%. Orders for civilian aircraft dropped 11.7%, whereas orders for defence aircraft and parts plunged 30.8%. Orders for motor vehicles and parts advanced 1.2% last month.

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