ECB president sees inflation still subdued

"Strong growth and low inflation probably allows Draghi to be upbeat but hold back from big changes today", said Jim Reid, a strategist at Deutsche Bank. Or will he sound more optimistic, erasing "downside risks" from his usual text?

That's a sign of greater confidence in the economy, which is growing at a two-year high, confidence that ECB President Mario Draghi echoed in subsequent comments.

Japan's benchmark Nikkei 225 index lost 0.3 percent to 19,924.86 and South Korea's Kospi edged up 0.1 percent to 2,361.70.

Removing the words "or lower" from the statement effectively means that the European Central Bank is now ruling out taking interest rates further into negative territory in the foreseeable future, removing its easing bias to monetary policy. The ECB chief is expected to say that the risks to the euro area's recovery are now balanced, and investors will be listening for any signal on when a decision to unwind stimulus might be taken.

The bank left its bond purchase stimulus program unchanged at 60 billion euros ($67 billion) per month through at least the end of the year and longer if necessary.

The June meeting will coincide with new forecasts for growth and inflation from the eurozone's central banks.

However, leaks yesterday claimed that the European Central Bank is actually going to revise down its inflation outlook - making any exit from its stimulus programme even less likely. This is down from the forecasts released in March, which saw inflation reaching 1.7 percent in 2017, 1.6 percent in 2018 and 1.7 percent in 2019. The measure pumps newly printed money into the economy in an effort to raise inflation toward the bank's goal of just under 2 percent considered best for the economy.

Supporting ECB's caution, headline inflation tumbled to 1.4 percent in May, its lowest level thus far this year. Britain's FTSE 100 slipped 0.1 percent. On Thursday, the bank lowered its forecasts for eurozone inflation this year to 1.5 percent from 1.7 percent, and for next year to 1.3 percent from 1.6 percent.

Underlying inflation has largely been stagnant thus far this year, except for a blip in April that was caused by a late Easter. Predictions for economic growth are likely to be revised up by about a tenth of a percentage point, the people said.

EUR/USD spiked to 1.1262 for a high following the 07:45 ET policy statement by the European Central Bank (ECB), then reversed sharply to the downside, with the session low now standing at 1.1217. However, significant underemployment is a cause for concern as it could delay the impact on wage growth in the near term.

The euro zone economy grew by more than previously estimated in the first quarter and at its fastest rate in a year, European Union statistics agency Eurostat said today.

European Central Bank policymakers are set to take a more benign view of the economy and will even discuss dropping some of their pledges to ramp up stimulus if needed, sources with direct knowledge of the discussions told Reuters.

  • Zachary Reyes