Southern European bonds set for best week in months…

Southern European bonds set for best week in months…

Southern European bonds set for best week in months…

The main refinancing rate, which determines the cost of credit in the economy, is unchanged at 0.00 percent while the rate on the marginal lending facility - the emergency overnight borrowing rate for banks - remains at 0.25 percent.

Bond yields too partially erased their earlier rise, as markets interpreted Draghi's comments as suggesting that any policy normalization would be very gradual.

As expected, the European Central Bank held its key interest rates at record lows, but it signalled greater confidence in the eurozone economy and its own chances of hitting its elusive inflation goal by dropping talk of boosting its mass bond-buying programme.

Odd, or not, while the European Central Bank needs to communicate effectively its intentions to gradually remove stimulus and begin steps towards policy normalisation, it does not want to do so at the risk of driving the euro rapidly higher.

"As we pointed out before, sooner or later, the strong euro had to have some impact". Still, the absence of strong inflation pressures is a feature of the big developed economic blocs after the crash and it makes it hard to forecast the outlook for inflation.

Trump is expected to announce by the end of this week tariffs of 25 percent on steel and 10 percent on aluminum.

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A higher euro also threatens the ECB's inflation goal by sapping exports and economic growth and making imports cheaper.

"Talk of greater available slack and the clear easing of inflation pressures has taken the pressure off the committee to act, and with a typically dovish Mario Draghi allowed to maintain an accommodative stance going forward, today is clearly a case of taking with one hand and giving with the other", he wrote. The ECB President Mario Draghi said a year ago that the bank had defeated the threat of deflation. But he said such disputes should be worked out among trade partners, not decided by measures initiated from one side. Spot gold was down 0.3% at $1,321.09 an ounce at 3pm GMT.

Fears of a transatlantic trade war and political deadlock in Italy did not deter policymakers from the strong hint that the end of their support for the 19-nation single currency area is drawing closer.

The ECB still expects inflation of 1.4 per cent this year, but reduced the outlook for consumer-price growth in 2019 from 1.5 per cent to 1.4 per cent. Against the pound, the euro was 0.13% lower at £0.8916 and fell 0.65% to Y130.81 versus Japan's yen.

"The ECB gave a reassuring message that QE would not come to a swift end in September and stated that the discussion on rate hikes and their timing had just started", said Commerzbank rates strategist Rainer Guntermann.

The Stoxx Europe 600 index climbed 1.1% to 376.62, the best close since February 28, FactSet data showed. Germany's Xetra Dax added 0.79% to 12,342, while the CAC 40 in France was up 1.29% at 5,254.

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