European Central Bank keeps interest rates unchanged

Javier Stokes
March 10, 2018

The currency was down by 0.3 percent to 1.2376 against the dollar. All sectors rose, led by the consumer-goods group.

IG says futures indicate the FTSE 100 index of large-caps to open at up 1.56 points at 7,159.40 on Thursday. Germany's DAX 30 index finished up 0.9% at 12,355.57.

The Bloomberg Dollar Spot Index increased 0.4 percent.

The bank has risen, slightly, its forecasts for real GDP (gross domestic product) since its last forecasts in December.

What was driving the market? Euro/dollar traded lower at 1.2370 (-0.34%) ahead of the European Central Bank rate announcement where any clues on the ECB's plans to change its forward guidance on monetary policy could bring fresh volatility to the currency.

"As we pointed out before, sooner or later, the strong euro had to have some impact".

Stocks in Europe and the United States also moved higher. The Euro gave up all of its early gains against the dollar to finish lower after Draghi said monetary policy would remain "reactive" and that measures of underlying inflation were still subdued.

The bank on Thursday left its key interest rates on hold as well as the size of its bond-buying stimulus program. For 2019 and 2020, it expects growth to be 1.9 per cent and 1.7 per cent, respectively. The main repurchasing interest rate at zero, the deposit facility rate at -0.4% and maintaining its commitment to €30bn in monthly asset purchases until at least September under its tapered quantitative easing programme.

Regarding non-standard monetary policy measures, the Governing Council confirms that the net asset purchases, at the current monthly pace of €30 billion, are meant to run until the end of September 2018, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.

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With the strong euro already exerting pressure on Europe's exporters, the last thing European Central Bank policymakers wanted to hear was President Trump planning to enact trade tariffs in the US.

"Unilateral decisions are risky", said Mario Draghi, president of the European Central Bank, on Thursday. While the new rules were expected to be signed by Trump today, it now seems that may be pushed back to allow more time to prepare legal documents.

Here are some of the things people in markets are talking about today.

The effect on spreads and on a flat euro was minimal after former prime minister Silvio Berlusconi said in a newspaper interview he would support the leader of the eurosceptic League party in attempts to form a government.

Which stocks were in focus?

"This is the first natural step toward normalization", said Piet PH Christiansen, an economist at Danske Bank A/S in Copenhagen.

Shares of Hugo Boss AG (BOSS.XE) lost 6.9% even after the German fashion company said it would raise its 2017 dividend (http://www.marketwatch.com/story/hugo-boss-plans-to-raise-dividend-as-profit-rises-2018-03-08) after net profit rose in the full year.

Analysts said the message could be complicated by US events.

In the U.S., Challenger Job Cuts fell 4.3%, down from the previous -2.8%.

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