European Central Bank leaves rates unchanged, drops easing bias

European Central Bank leaves rates unchanged, drops easing bias

European Central Bank leaves rates unchanged, drops easing bias

During a press conference after the decision was released, European Central Bank chief Mario Draghi added that unilateral decisions on trade were "dangerous".

'If the outlook becomes less favourable... the Governing Council stands ready to increase the asset purchase programme (APP) in terms of size and/or duration'. Following their Canadian and Australian counterparts, European Central Bank policymakers are anticipated to stand pat on interest rates and according to market chatter leave forward guidance on monetary policy unchanged.

"Apart from being a contradiction, it also locks in the European Central Bank to a narrow range of policy choices".

The ECB will publish new forecasts for its main target of euro zone inflation and for growth later, which will feed the debate on its end to stimulus.

Let's not forget that during a period of more than a year when U.S. policy normalisation is well advanced, the Federal Reserve's interest rate increases have done nothing to support the dollar. Money market futures also sold off as investors ratcheted up their rate-hike bets. The risks surrounding economic growth were still described as "broadly balanced", although "rising protectionism" was noted as a downside risk. The fact that the United States economy can continue to add over 200k jobs a month even at this advanced stage of the economic cycle would appear to suggest that the U.S. economy still has an element of slack in it, despite evidence of some skills shortages.

"An escalation of trade wars would lead to greater political uncertainty and a weaker U.S. dollar".

"The effect on confidence is very hard to assess, estimate, forecast, but if it's a negative effect on confidence that is going to be negative on both inflation and output", he said.

The euro was volatile after the ECB's statement, first jumping and then falling back to $1.2333 by end of day.

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ECB President Mario Draghi played down the change today.

It is still hard to avoid the sense that markets are underestimating the prospect that this could all blow up into one big mess, particularly since the departure of Mr Cohn would appear to suggest that he was losing the argument on trade policy, and that steel and aluminium tariffs are merely the warm up act, for additional policy measures.

Spanish construction firm ACS rose 8.7 per cent after reports it was in talks with Italy's Atlantia to break up Abertis in an effort to avoid a bidding war for the highway concessions company.

But it was on the path of policy tightening that Draghi dialled back the most on. Investors will also keep a close eye on the ECB's growth projections and will be eager to hear any comments on the exchange rate. It remains at 1.2 percent, stubbornly below the bank's goal of just under 2 percent, the level considered best for the economy.

On the currency markets the dovish message won out.

The US dollar rose against other major peers on Thursday, as fears over a trade war briefly fades, with the US data reporting higher jobless claims. Against the pound, the euro was 0.13% lower at £0.8916 and fell 0.65% to Y130.81 versus Japan's yen.

"However, with the unemployment rate lower than it was and growth strong, the economy is clearly in less need of stimulus". The EURO STOXX 50 closed 1.1% up at 3,415.74 points.

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