Praet Plays Down Draghi's Inflation Comments; Euro Whipsaws

(Bloomberg) -- European Central Bank policy maker Peter Praet said he doesn’t believe President Mario Draghi intended to send a new signal when he said the pickup in underlying euro-area inflation is “relatively vigorous.”

The euro slid after Praet, the ECB’s chief economist, made the remarks in London on Tuesday. The single currency jumped the previous day when Draghi spoke at the European Parliament, and investors bet on a faster pace of interest-rate hikes over the next two years.

Praet Plays Down Draghi's Inflation Comments; Euro Whipsaws

“I saw indeed yesterday the market reactions,” Praet said. “They reverted a little bit later, I think rightly, because I don’t think there was anything new in his communication. Basically what we say is price pressures remain subdued and it will take a long time before we get close to 2 percent.”

The euro dropped a third of a cent before rebounding to trade 0.1 percent higher at $1.1762 at 10:42 a.m. London time. It leapt to a three month high of $1.1815 on Monday.

September inflation data due Friday is expected to show the headline rate accelerating to 2.1 percent from 2 percent, though the measure has been bolstered by oil prices which are near a four-year high. The underlying rate is predicted to be just 1.1 percent, a marginal improvement on August’s 1 percent.

The Governing Council intends to end their asset-purchase program at the end of this year amid the improving price outlook. They expect interest rates to stay at record lows “at least through the summer of 2019.”

Investors are betting that borrowing costs will start rising late next year, and Praet said the yield curve in financial markets has been “broadly consistent” with what policy makers think is needed.

He also stated that the most prominent threats to the euro zone’s outlook for price stability and financial stability are outside the bloc, such as trade tariffs imposed by U.S. President Donald Trump’s administration.

“The biggest risk is coming from the global environment, and I would say a ‘growth accident’ could come from a materialization of protectionist pressures and a growth slowdown across emerging markets,” he said. “ We know the scenario very well.”

Praet’s appearance is the first of five speaking engagements he has scheduled this week. Two events in London on Tuesday are closed to media, and the ECB doesn’t plan to publish his comments. One of those is at Omfif, a think tank for central banking. The other is hosted by InTouch Capital Markets, which describes itself as a provider of financial-market information run by a team of former bank traders, brokers and portfolio managers.

©2018 Bloomberg L.P.