ECB President Mario Draghi reported today that the ECB is comfortable with taking further action in June if needed, verifying his recent comments that the euro has been fairly strong, which has affected inflation across the Eurozone.
Following Draghi’s comments, the euro reversed from a 2½ year high and slid lower trading around 1.385 against the US dollar, giving back recent gains. The ECB kept interest rates unchanged in today’s meeting in Brussels, signalling a possible increase in the coming months.
Nevertheless, sterling strengthened to reach an 11-week high against the euro trading near 1.225, following Draghi’s announcement.
The Bank of England also kept its interest rate at a record low 0.5% at today’s meeting, a rate it has maintained since March 2009, despite the recent rally in the UK housing prices. However, the Halifax house prices index surprised market participants today after showing a decline of 0.2% m/m in April, against expectations of a 0.9% increase.
As the Nationwide house price index has recently showed, annual house prices inflation has reached double digits, we tend to believe another ‘house bubble’ is likely to develop sooner than later, if the Bank of England takes no action in increasing interest rates.