Euro retreats as European Central Bank deliver little new to encourage the hawks

Euro retreats as European Central Bank deliver little new to encourage the hawks”

The European Central Bank has left its interest rate benchmarks and policy statement unchanged, underlining the bank's unwillingness to roil markets with premature signals about an exit from its stimulus efforts as the economy recovers.

Investors are expected to focus on ECB President Mario Draghi's news conference for clues to when the bank might begin to taper and wind down its asset purchase programme.

The President of the European Central Bank will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.

Sterling is up 0.12% versus the euro to €1.13, while it is fairly flat against the greenback at a shade over US$1.30.

The next monetary policy meeting after September is scheduled for October 26.

Markets took the comments to mean the bank could scale back its huge money-printing programme, which now injects billions of euros a month into the economy by buying bonds. The US Dollar has benefitted from Bank of Japan (BoJ) news, leaving EUR USD down near 1.1505, below this week's 14-month-high of 1.1581.

"We need to be persistent and patient because we aren't there yet", he told a news conference.

The U.S. dollar rose for a second successive day against a trade-weighted basket of its rivals after falling to a 10-month low earlier this week.

However, Draghi denied that the central bankers had discussed adjusting the programme and said that central bank staff had not done any economic analysis on possible options for changing the stimulus programme. The German 10-year government bond yield also reached a session high of 0.56 percent, and was up 2 bps on the day.

Any increase in borrowing costs for Italy is seen as problematic because of its high debt levels: it had one of the highest debt-to-GDP ratios in Europe at 132.6 percent at the end of 2016, according to Eurostat.

While suffering against the euro, the dollar also weakened overall against a basket of major currencies.

The program's goal is to raise inflation to just under 2 percent from the current 1.3 percent, and Draghi said that right now "there really isn't any convincing sign of a pickup in inflation", a remark he repeated several times in slightly different form.

The danger, however, is that such expectations lead to even tighter financial conditions as the euro and yields rise, making it all the more hard to achieve the ECB's inflation target and providing a headwind to the region's strengthening recovery.

Global equity markets have turned positive reversing yesterday's fall - Dow +0.2%, S&P 500 +0.43%, FTSE +0.55%, DAX +0.17%, CAC +0.83%, Nikkei +1.0%, Shanghai +1.36%.

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