ECB Meeting to Be Watched for Baby Steps Toward Pullback on Stimulus

With Thursday's decision, the ECB's deposit rate, its key policy tool, remains at -0.4 percent.

The ECB has confirmed that it will continue its asset purchase program until the end of December this year - and further still, if necessary.

"Currency markets are watching the United Kingdom election, the ECB meeting tomorrow and then casting eyes forward to the Federal Reserve meeting next week", said Bill Northey, chief investment officer at the private client group of U.S. Bank in Helena, Montana.

If the central bank ultimately does not revise its inflation forecasts lower this could also encourage investors to pile back into the Euro ahead of the weekend.

However, he said that there was no discussion on tapering or normalizing interest rates in the Governing Council as it was not yet time to think of such steps given the subdued inflation in the euro area.

The European Central Bank made its first significant change to its forward guidance in many months Thursday, dropping its bias toward lower interest rates in a move that came as little surprise given the pickup in eurozone growth since the start of the year. "If you downgrade your inflation forecasts the next year you're basically sending a message to the market - "We're not in any rush", CMC Markets' chief markets analyst, Michael Hewson, said. "Having said that, the euro zone has started the year with a lot of momentum and that's likely to continue in the second quarter based on the data we've seen".

Earlier, the European Central Bank changed its forward guidance on interest rates, omitting language that previously suggested officials were prepared to cut them again if needed.

Meanwhile, the by-products of this ultra-loose monetary policy have become clear. The ECB also left its stimulus policy unchanged, but signaled an end to further rate cuts, as inflation remained below its target despite a quickened pace of economic growth. ECB President Mario Draghi went a step further at his press conference today by saying that the risks to the Eurozone growth outlook are now "broadly balanced".

Mr Draghi's downbeat tone on wage growth and inflation bled into his commentary on the Governing Council's view that it no longer expects it might have to cut interest rates.

Euro-area unemployment is dropping faster than projected, with the rate now falling at nearly one percentage point a year and more people joining the workforce.

Although these policies will continue for now, the European Central Bank opted for what Brzeski calls "linguistic changes" to reflect the fact that the eurozone's economy is gathering speed, growing twice as fast as the the first quarter.

Draghi has repeatedly insisted the central bank will not consider tightening monetary policy until inflation rises sustainably, without the effects of the more volatile components, towards its two per cent target.

  • Zachary Reyes