The European Central Bank stuck to plans on Thursday to claw back unprecedented stimulus, even as the growth outlook continues to darken and political turmoil in Italy looms large over the currency bloc. Having exhausted much of its firepower with years of support, the ECB reaffirmed that its 2.6 trillion euro ($3 trillion) asset purchase scheme will end this year and interest rates could rise after next summer, sticking to guidance first unveiled in June and repeated at every meeting since.
While he acknowledged a loss of growth momentum and a “bunch of uncertainties” from trade protectionism and market volatility, ECB President Mario Draghi played down concerns, arguing that the euro zone was merely returning to a normal or natural pace of expansion after an exceptional 2017. With the EU having taken the unprecedented step of rejecting Italy’s budget this week, Draghi was quizzed at length about the escalating political fight between Rome and Brussels. He made it abundantly clear that the ECB would not come to Italy’s aid. Draghi said he was confident compromise would be reached between Brussels and Rome and noted how much the stand-off was already costing Italy because of the rising yield on its government debt.
The pound fell on Thursday as the dollar strengthened and relief about British Conservative lawmakers backing Prime Minister Theresa May’s Brexit strategy gave way to fresh fears about the risk of a no-deal UK departure from the European Union. Britain’s opposition Labour Party also challenged Prime Minister Theresa May’s government on Thursday to deliver immediately on its promise that nearly a decade of public spending cuts is coming to an end. Chancellor of the Exchequer Philip Hammond will announce his annual budget next week, armed with better than expected public finances but needing to balance any largesse with caution over the huge uncertainty posed by Brexit.
Labour’s finance policy chief John McDonnell said Hammond must also flesh out a promise May has made to bring an end to austerity after eight years of public spending cuts designed to shrink Britain’s budget deficit. McDonnell’s speech was accompanied by a dossier outlining Labour research into the extent and impact of spending cuts on areas such as health, education and local services. It said 30 billion pounds of new funding was needed to stop planned cuts, and nearly 80 billion to reverse cuts since 2010.
13.30 – USD: Advance GDP QoQ; Forecast at 3.3% against 4.2%
15.00 – EUR: ECB President Draghi Speaks