No more rate cuts, ECB says on Thursday

A smoothly executed rescue of Spain's Banco Popular lifted bank stocks in Europe, while oil prices suffered a steep slide after the USA government reported an unexpected increase in crude and gasoline inventories.

In late NY trading, the euro fell to 1.1222 dollars from 1.1257 dollars in the previous session, and the British pound lost to 1.2937 dollars from 1.2951 US dollars in the previous session.

ECB President Mario Draghi said the latest data point to stronger momentum in the eurozone economy, which is projected to grow faster than previously expected. If the European Central Bank disappoints and Mario Draghi doesn't reflect confidence in the economy's recovery, the EURUSD may be headed for a sharp selloff.

However, Draghi notes the risk assessment of growth is now broadly balanced, as opposed to being biased to the downside.

On an annualised basis, the euro zone economy was expanding at a rate of 2.3 per cent in the Jan-March period, far outstripping the 1.2 per cent rate of the United States.

The evidence is piling up that the growth in the eurozone has kicked into a higher gear and the region is recovering from the Great Recession and its crisis over high debt. It still judged the euro zone economy to be rebounding and signalled it would not cut interest rates further."Comey might move the markets in the short term but I don't think it's going to affect the intrinsic values of what many large US businesses are worth", said Mike Mattioli, portfolio manager at Manulife Asset Management in Boston.MSCI's all-country world equity index.MIWD00000PUS was last down 0.33 points, or 0.07 percent, at 467.3.

Despite the rosier growth, few in the markets expect the European Central Bank to announce any change in its stimulus program, largely because inflation remains too low for comfort. The 60 billion euros ($67 billion) per month in bond purchases are to run at least through the end of the year. 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.

But the bank trimmed inflation forecasts for the next three years and said "substantial" amounts of stimulus through its unprecedented asset purchase scheme were still needed.

The euro area growth forecast for this year was raised to 1.9 percent from 1.8 percent.

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.

The emphasis the European Central Bank puts on its role implies that it believes growth isn't yet strong enough for it to start dialing back on the bond-buying stimulus program it has been running since March 2015.

Ending the bond purchases and raising interest rates could have wide-ranging effects, such as a stronger euro and higher interest costs for heavily indebted governments.

Bond-buying and low interest rates were introduced at a time when the European Central Bank feared deflation - or steadily decreasing prices that undermine economic activity.

Even so, in the meantime the deposit rate the ECB now charges banks to hold cash overnight was kept unchanged at minus 0.4pc. That is in effect a tax aimed at pushing them to lend the money instead of hoard it.

The ECB held Thursday's policy meeting in Tallinn, Estonia, one of the occasional meetings held away from the bank's Frankfurt headquarters.

  • Zachary Reyes