Dovish ECB Continues Stimulus

EUR

The Euro weakened yesterday afternoon after the European Central Bank reacted to the threat of recession and signalled Interest rates in the eurozone will not rise until next year at the earliest. Mario Draghi, president of the ECB, said rates would remain at their present levels "at least through the end of 2019".

The ECB also unveiled a round of fresh stimulus, offering banks cheap loans to try to help revive the economy amid evidence of a slowdown in the 19 countries using the single currency after sharp cuts to its forecasts for both growth and inflation this year. The third cheap funding scheme for banks, the Targeted Long-Term Refinancing Operation (TLTRO III), which consists of two-year loans to help avoid a squeeze on credit, which could add to the slowdown in Europe. The move surprised observers with its double dovish move on monetary policy.

Draghi also said economic growth in the euro area was now expected to be 1.1% this year, against a previous forecast of 1.7%. The move surprised financial markets, which expected the ECB to wait for a few more months of economic data before easing its lending policy. Their decision to push back on any plans to raise rates follows similar moves from central banks around the world, including the US Federal Reserve and the Bank of England.

Key Announcements

13:30 – USD: Average hourly earnings expected to increase to 0.3%
13:30 – USD: Non-farm employment change forecast to decrease to 181K
13:30 – USD: Unemployment rate expected to decrease to 3.9%