Euro drops, stocks rise as European Central Bank vows to keep rates low

17 June, 2018, 11:40 | Author: Barbara Daniel
  • All Eyes are on Powell

The yen was 0.2 per cent weaker at ¥110.56 per dollar.

The biggest complication could be a murky economic outlook, muddied by the developing trade war, a populist challenge from Italy's new government and softening export demand.

The Euro US Dollar (EUR/USD) exchange rate climbed on Thursday, reversing yesterday's brief fall after US Fed Chairman Jerome Powell stressed than an inflation overshoot will be allowed.

The meeting comes one day after the USA central bank raised rates, citing May's jobs report as a sign that the American economy continues to improve.

In a rare merging of the sports and trading worlds, markets are gearing up for soccer's World Cup in Russian Federation, where time zone differences mean more matches during European, US and Latin American trading hours than any previous tournament.

Expectations of higher U.S. interest rates are also helping to make the U.S. Dollar a more attractive investment.

Signalling the move would not mean rapid policy tightening in the coming months, the European Central Bank also said that interest rates would stay at record lows at least through the summer of 2019, suggesting protracted support for the economy, even if at a lower level.

Interest rates remained unchanged at the ECB's June meeting.

"The euro showed such a big reaction to the European Central Bank meeting as its stance came in sharp contrast to the Federal Reserve, which had struck a hawkish tone just the day before", said Junichi Ishikawa, senior forex strategist at IG Securities in Tokyo.

US President Donald Trump has made up his mind to impose "pretty significant" tariffs and will unveil a list targeting US$50 billion (RM199 billion) of Chinese goods today, an administration official said.

A broader slowdown could make it harder for the ECB to cut support if lower growth eases pressure on inflation, a threat to the bank's credibility as it has missed its inflation target of nearly 2 percent for over five years. Tokyo ended 0.5 percent higher and Sydney added more than one percent.

The ECB said it would end its bond buying program by December but interest rates would stay on hold "through the summer of 2019".

It also highlighted the divergence in monetary policies between the hawkish U.S. Federal Reserve and the dovish European Central Bank. The central banks are withdrawing stimulus efforts that started during the Great Recession as their economies strengthen.

The rise in the value of the United States dollar, therefore, did not come from the fact that the Federal Reserve expects to continue raising its short-term policy rate through 2019.

Oil markets edged up, despite the strengthening dollar and fears that Opec countries could decide to increase output at a meeting next week.

West Texas Intermediate (WTI) crude oil futures were up 0.1% at $66.93 a barrel, while Brent was down 0.1% at $75.87.


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