Eurozone growth at 2-year high but European Central Bank set to hold fire

The figure for 2018, in particular, is a big cut, and suggests it will be years before the European Central Bank achieves its target of 2% inflation.

The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The governing council expects the rates to remain stable at the current level over a longer term and well past the asset purchase timeline.

Despite the fact that the European Central Bank has shifted to a "less dovish" stance, he pointed out that there had been no discussion on the possible tapering of the asset purchase program. The ECB sees the need for continued and substantial monetary easing to secure sustained inflation rates. In a way, though, the slight change in tone in the statement was a baby step in preparing the market for potentially tighter monetary conditions in the future.

The Euro fell back towards $1.12 against the United States dollar and held above €1.15 against the British pound as European Central Bank President Mario Draghi failed to deliver the headlines that investors had been looking for this week by not giving any indication as to when the ECB would begin the tapering of its huge quantitative easing programme.

The change in the bank´s stance was widely expected among analysts, who believe it could be the first step towards the bank winding down its 60-billion-euro ($67.4 billion) per month bond-buying programme next year.

ECB President Mario Draghi has been cautious in recent days, stressing that the economy still needs support, especially when it comes to inflation, which is still below what the bank considers ideal.

As expected, the European Central Bank played it cautious at the June policy meeting.

The currency bloc has been on its best economic run since the global financial crisis almost a decade ago but the European Central Bank had been expected to take a more cautious stance as the inflation rebound has yet to show a convincing upward trend.

The bank's president Mario Draghi was careful however not to give financial markets a clear signal as to when its stimulus efforts will start to be withdrawn given ongoing worries over too-low inflation. A break above has the potential to bring more buyers into the market, as this would result in a breakout above the spike high established on November 9th, at the time of the US Presidential election.

Sterling hit a two-week high of $1.2977 earlier in the session after polling organizations' last surveys, but weakened later in the day to trade down 0.13 percent at $1.2942.

Meanwhile, pressure from politicians in fiscally conservative countries like Germany is mounting over low inflation's impact on savers. Core inflation, which strips out the effects of volatile food and fuel prices, fell to only 0.9 per cent in May. The outlook for next year was raised to 1.8 percent from 1.7 percent.

The official GDP growth projection for 2017 was increased to 1.9 per cent this year, 1.8 per cent in 2018 and 1.7 per cent in 2019.

Commerzbank's Schubert expects the buying to continue: "The ECB has already said that it will not terminate this program abruptly, which means that even if it thinks it is no longer necessary, it will probably let the scheme slowly taper off".

  • Zachary Reyes