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Euro suffers more losses as ECB defers plan to raise interest rates

17 June, 2018, 09:33 | Author: Melinda Barton
  • ECB calls halt to quantitative easing, despite 'soft' euro

"Draghi's press conference was masterful and - predictably - leaned heavily dovish to offset what we continue to believe was substantively a hawkish decision", Guha said. "It can only create damages". Meanwhile a newly-elected populist government in Italy with big-spending plans could tip the eurozone's third-largest economy into financial crisis and there is so far no agreement on Britain's future trading relationship with the European Union after it departs the bloc early next year.

Italian bond yields rose sharply this month as a new government of anti-establishment parties promised higher spending. At various times the parties have also questioned Italy's membership in the euro itself. This is very welcome news for the United Kingdom economy that supports the view that the economic slowdown witnessed in the first quarter of the year may prove temporary.

The S&P-ASX 200 index ignored the subdued 0.3 per cent gain on Wall Street last night and jumped 77.4 points, or 1.29 per cent, to 6094 as bargain hunters piled on on relief the European Central Bank would not compound pressures on the global economy from US Federal Reserve rate hikes.

May saw stronger-than-expected inflation, jumping to 1.9% from 1.2% in April, close to the ECB's target of 2%.

As the stimulus is ended and then withdrawn over a period of years, those effects will go into reverse, though investors do not seem too anxious just yet: the DAX rallied 1.7 percent on Thursday.

Shares in supermarket Tesco, Britain s biggest retailer, meanwhile jumped around 2.5 percent after the company reported solid first-quarter sales.

The euro's 5 percent fall against the dollar since April is also helping the European Central Bank as the weaker currency is increasing the cost of imports and boosting inflation. However, China and Japan are not following America's lead; the People's Bank of China is not raising its rates and the Bank of Japan is expected to keep its stimulus measures in place when it gathers this week.

In turn, those people and firms will spend money, powering economic growth and, so the theory goes, inflation.

The program has driven down borrowing costs and supported an economy recovery in the 19 countries that use the euro.

The ECB said the monthly pace of its net asset purchases would be halved to 15 billion euros (S$23.35 billion) from September until the end of December 2018, at which point purchases would end.

Euro investors appeared to focus more on the statement from the bank's governing council that key ECB rates are to remain at their present levels "at least through the summer of 2019". It had deployed the program in 2015 to save the region from the risk of falling prices and growth, and as Greece's debt crisis raised questions about the euro's future.

The decision represents a belief in the central bank that the eurozone economy, after years of weakness and recession, "is now sufficiently robust that it can start to withdraw monetary stimulus" says The Independent.



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