Pressured by Dovish ECB, Underpinned by Concerns Over US-China Trade Relations

Pressured by Dovish ECB, Underpinned by Concerns Over US-China Trade Relations

Pressured by Dovish ECB, Underpinned by Concerns Over US-China Trade Relations

EU currency rates continue to decline as the European Central Bank appears set to maintain low interest rates and end its stimulus measures.

The euro bounced on Friday after suffering its worst day in almost two years when the European Central Bank signalled it would keep interest rates at record lows into the summer of 2019.

The dollar index against a basket of six major peers rose 0.3 percent to 95.111, its highest level since November, after rallying more than 1 percent the previous day.

Two of the globe's most powerful central banks are gradually withdrawing the easy money policies that helped fix the damage wrought by the Great Recession and push stock markets to record highs. However, yesterday's European Central Bank decision signalled that the euro won't get additional interest rate support anytime soon.

The central bank said Thursday that it would reduce its bond purchases in the final three months of the year, before halting them altogether at the end of December.

The ECB also downgraded its euro zone growth forecast for this year to 2.1 percent from 2.4 percent previously, while upgrading its inflation forecast to 1.7 percent from 1.4 percent, largely as a result of rising oil prices.

Gold prices are trading lower early Friday, putting it in a position to close lower for the week.

Meanwhile, there was worrying economic news out of Germany, where the Bundesbank cut this year's economic growth forecast to 2% from 2.5%.

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The ECB said the monthly pace of its net asset purchases would be halved to 15 billion euros (S$23.35 billion) from September until the end of December 2018, at which point purchases would end.

It also highlighted the divergence in monetary policies between the hawkish U.S. Federal Reserve and the dovish European Central Bank. Then, it did not commit to a specific end or any subsequent steps.

China stocks led the losses, with the benchmark Shanghai Composite index plumbing a 20-month low, as investors anxious about the negative economic impact arising from the trade tensions with the United State.

Inflation has recovered - it was 1.9 percent in May - but the bank must be able to show that inflation will stay in line with its goal even after the stimulus has been stopped. A coalition between the anti-establishment 5-Star Movement and the anti-immigration League has promised spending that could add to the country's already heavy debt load.

The kiwi rose to 52.56 British pence from 52.46 pence yesterday after United Kingdom core retail sales for May jumped 1.3 percent, month on month, versus expectations for a 0.3 percent gain.

It also lifted sterling 1pc higher against the euro to €1.1460, its strongest gain on the currency in 2018, while another rout in emerging markets currencies sparked by the Fed eased.

The Canadian dollar weakened to a fresh near one-year low against its US counterpart as trade tensions between USA and China intensified and domestic data showed a surprise drop in manufacturing sales.

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She further said that the USA tariffs were "illegal and unjustified" and Canada did not believe in using "ad hominem attacks". In his turn, Trump announced that the U.S. would be looking to impose tariffs on vehicle imports.

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