US president Donald Trump has accused Mario Draghi of unfairly manipulating the euro, after the European Central Bank president gave his clearest indication yet that he will launch another round of stimulus if weak growth and political uncertainty fail to dissipate.
Speaking at the ECB’s annual symposium in Sintra, Portugal, Mr Draghi said the bank had “considerable headroom” to launch a fresh expansion of its €2.6tn quantitative easing programme and suggested it could, in the short term, target inflation above its medium-term goal of just under 2 per cent for a limited period of time.
“We remain able to enhance our forward guidance by adjusting its bias and its conditionality to account for variations in the adjustment path of inflation,” he said.
In response, Mr Trump suggested that Europe was engaging in currency manipulation.
“Mario Draghi just announced more stimulus could come, which immediately dropped the euro against the dollar, making it unfairly easier for them to compete against the USA,” the US president wrote on Twitter. “They have been getting away with this for years, along with China and others.”
The clash between Mr Trump and Mr Draghi comes as the US Federal Reserve prepares to discuss whether to cut interest rates in response to signs that the global trade war is hitting growth, with officials due to meet in Washington on Wednesday.
Mr Trump has expressed a clear preference for the Fed to cut interest rates, saying last week that the central bank was “very disruptive to us”.
European government bond prices rose sharply after Mr Draghi’s remarks. French 10-year bond yields turned negative for the first time, falling 0.1 percentage points, while 10-year yields in Sweden, which is not a euro member, fell 0.027 percentage points, also sinking past 0 per cent for the first time.
German government bonds, the region’s benchmark, hit a new record, with 10-year yields sinking 0.07 percentage points on the day to minus 0.32 per cent. Yields fall when prices rise, and negative yields mean new buyers are guaranteed to make a nominal loss if they hold the debt to maturity.
Italian government bonds also rallied, with the 10-year yield falling 0.17 percentage points to 2.112 per cent, its lowest level since last year’s politically-driven sell-off.
The euro sank by about 0.5 per cent, reaching a low of just under $1.12.
It is not the first time Mr Trump and his administration have expressed concern about weakness in the euro. Early in his tenure, top White House trade adviser Peter Navarro said Germany used the euro to “exploit” the US.
Last month, the US Treasury said that Germany, Ireland and Italy, all euro members, “merit close attention to their currency practices”. That placed them on a list alongside China, where a potential burst of fresh currency weakness is seen as a risk to already-strained trade talks.
Mr Draghi said indicators pointed to signs of “lingering softness” in the economy in the coming quarters, adding that if the outlook for inflation failed to improve then additional stimulus must be needed.
The bank could lower its policy interest rates — now at record lows of zero and minus 0.4 per cent. The ECB could also buy more government debt than previously thought by changing self-imposed rules that limit it to buying up to a third of any one sovereign’s debt, Mr Draghi said.
“If the crisis has shown anything, it is that we will use all the flexibility within our mandate to fulfil our mandate — and we will do so again to answer any challenges to price stability in the future,” he told the audience in Sintra.