Euro rebounds after European Central Bank drops easing bias

Jon Howard
March 10, 2018

European Central Bank head Mario Draghi expressed concern about U.S. President Donald Trump's announced trade measures, saying the immediate spillover "is not going to be big" but that "unilateral decisions are risky". It continued to state that net asset purchases, at €30bn a month, would run until the end of September 2018, or until the council sees "a sustained adjustment in the path of inflation consistent with its inflation aim".

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

Markets have this week nervously watched a populist surge in the eurozone's third-largest economy and barbs exchanged between Washington and Brussels over looming USA tariffs on steel and aluminum and possible European Union counter-measures. On the background of the emerging transatlantic trade war and the rise of populism in the Italian parliament after the latest elections, the European Central Bank president Mario Draghi is unlikely to shake the boat with the topic of higher interest rates or shortening the government bond purchase program.

Portugal's 10-year bond yield fell to a six-week low at 1.81 percent PT10YT=RR, while Spanish 10-year bond yields hit a one-month low at 1.41 percent.

The move was not totally unexpected as over the past few months as a divide in Governing Council had surfaced with some policymakers seeking such a tweak to the forward guidance language.

The dollar was down by 0.1 percent to 1.2893 against its Canadian counterpart.

Hong Kong's Hang Seng led the region with rise of 1.4 per cent after China's surprisingly strong trade data.

The dollar recovered ground on Thursday, drawing relief from positive upmarket data and the White House saying Canada and Mexico, and possibly other countries, may be exempted from planned U.S. import tariffs on steel and aluminium.

No Brexit progress without Irish border solution — EU's Tusk
This should be "frictionless" and include access to free trade agreements already in place between third countries and the EU. European Council President, Donald Tusk , said the news should "come as no surprise" to the United Kingdom government.

The Euro is pushing higher against the Pound this afternoon following the ECB's latest policy meeting.

On the Trump tariffs he said potential trade disputes "would introduce higher uncertainty in the future growth path".

"If Donald Trump puts in place the measures this evening, we have a whole arsenal at our disposal with which to respond", Moscovici told BFM TV on Thursday.

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The US currency was steady at 106.130 yen after slipping to as low as 105.450 the previous day in reaction to Mr Cohn's departure.

The Mexican currency was at 18.72 pesos per dollar following its recovery from 18.90 touched on Wednesday. Looking ahead, on the basis of current futures prices for oil, annual rates of headline inflation are likely to hover around 1.5 percent for the remainder of the year.

From a technical standpoint, the Dollar Index remains at threat of extending losses if bulls are unable to push prices back above 90.00.

Key industrial metals were weak. "With political risk in Europe weighing on sentiment and trade war fears lingering in the background, Draghi could end up disappointing markets today", he noted.

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