European stocks rallied and the euro fell to near a one-year low against the dollar on Monday as expectations grew that the European Central Bank would loosen policy.
ECB President Mario Draghi said late on Friday that the bank was prepared to respond with all available tools inflation in the euro zone dropped further.
Investors speculated this meant the ECB was more likely to embark on an asset-purchase program, or quantitative easing, or adopt other stimulus measures in coming months.
Draghi’s comments caused yields on most euro zone government bonds to fall to record lows and European stock markets to rise. They overshadowed the resignation of the French government and a weak German Ifo business sentiment survey.
“The key message is that Draghi stands ready for more action if needed,” said Franz Wenzel, the chief strategist at AXA Investment Managers in Paris.
“Whether they’re going to do quantitative easing remains to be seen, but we’re fairly confident that the financial engineers at the ECB will find other tools. At this juncture, we don’t exclude quantitative easing at the end of this year.”
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