Published: Fri, July 21, 2017
Finance | By Laverne Griffith

Euro retreats as European Central Bank deliver little new to encourage the hawks

Euro retreats as European Central Bank deliver little new to encourage the hawks

The European Central Bank on Thursday afternoon left monetary policy unchanged following the July meeting of its governing council.

Whilst Draghi did not directly set a time frame for the tightening of the ECB's now extremely loose monetary policy, he did assert that policymakers were "unanimously agreed" that such talks will, and should take place during the summer recess.

Sales grew 0.6% on the month, beating forecasts by 0.2%, while sales excluding fuel increased 0.4% more-than-expected at 0.9%.

Draghi is not expected to give much away at his news conference following the meeting of the bank's 25-member governing council, at which no changes in the stimulus are expected.

The instigator of the selling, the euro, was 0.98% higher against the greenback to 1.1627, while sterling sold off by 1.37% to 1.1157. In the year to June, it was only 1.3 percent.

The market reaction echoed the so-called "taper tantrum" that followed remarks by then U.S. Federal Reserve head Ben Bernanke in May, 2013.

The bank also retained its asset purchases of Euro 60 billion a month till December 2017, or beyond, if necessary.

With the ECB about to break for summer holidays most economists believe the Central bank will hold steady this week and wait for till their September meeting before announcing roadmap toward winding down its easing measures.

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Mario Draghi reiterated concerns that inflation remains low, as he poured water over hopes that policymakers would soon scale back the bloc's huge money-printing programme. The pan-European Euro Stoxx 600 index extended gains a little on the announcement and yields on the 10-year German bund also pushed lower.

"Draghi's speech was essentially dovish, emphasizing a "very substantial degree of accommodation" and reaffirming the commitment to quantitative easing", Mitsubishi analyst Jonathan Butler said.

On the FTSE 100, EasyJet (EZJ) fell to the bottom of the index, down 6% at £13.33, despite the budget airline flagging profits would be higher than expected, at up to £420 million, but still below last year's £495 million.

The euro has gained almost 11 percent so far this year against the dollar.

Earlier, the pound had been buoyed by better than expected official figures on retail sales for June, before the gains faded.

Some market participants said there was a chance the euro could be hit if the European Central Bank does not at least tweak its position on Thursday - possibly by dropping a reference to its readiness to increase the size or duration of its asset-purchase programme. Overnight, the Bank of Japan announced it was maintaining its policy position unchanged, while yet again delaying the deadline to hit 2 percent inflation.

The yen meanwhile had weakened to 112.325 per USA dollar after the BOJ pushed back its projected timing for hitting its 2% inflation target until 2020.

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