US President Trump tariff move "dangerous" — European Central Bank

EUR  USD Daily Chart

Thursday's move is all the more remarkable because the European Central Bank has a track record of trying to tighten policy too early.

The European supervisor has chose to maintain reference interest rate for its refinancing operations by 0%, while deposit facility rate will continue at-0.40% and that of loan facility by 0.25%, while discarding posi Possibility of expanding bond purchase program, monetary agency said. "He is a dove and it's clear he still wears the pants on the Governing Council".

"Apart from being a contradiction, it also locks in the European Central Bank to a narrow range of policy choices". The economy is now doing better, but the bank has moved cautiously in ending its crisis measures for fear of roiling recently volatile financial markets.

In the medium-term gold will come under temporary pressure from interest-rate hikes, said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.

Taken together with the actual outlook for the currency from foreign exchange dealers - it is set to rise more as the dollar falls - there is cause for concern, or at the least, an inclination to consider if we haven't been here before. It touched a one-week high of US$1,340.42 on Wednesday before closing 0.6 per cent lower.

The given reason for scaling back stimulus expectations was an improving outlook for Europe's economic growth and inflation rate. And at this stage in the economic cycle, growth can become fragile very quickly.

The dollar index found the opportunity to crawl up to 89.81 (+0.19%) and dollar/yen climbed to 106.13 (+0.08%) in early European afternoon as investors were waiting for more details on Trump's import tariffs and were particularly eager to hear if any countries would get exemptions.

European Union officials outlined planned retaliatory measures on targeted American exports to be rolled out if the United States makes good on its threat, while China said it would make "an appropriate and necessary response". The change in the ECB statement is a hawkish tweak although the ECB President tried to downplay it during the press conference.

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The dollar, which is seen a safe haven on trade war fears, had dipped on prospects for a softening stance on the tariffs before gaining on perceived dovish remarks from Draghi. But he said such disputes should be worked out among trade partners, not decided by measures initiated from one side. The inflation projection for 2020 was left unchanged at 1.7 percent.

The MSCI Emerging Markets Currency Index fell 0.2 percent.

The euro has turned lower vs. the dollar by 0.3% and the Stoxx 600 has moved from flat to up 0.8%.

Insurer Aviva lost 2 percent despite reporting a 2 percent rise in FY17 operating profit and enhancing dividend payment.

The change in the language of the central bank is likely to be the first step to choreograph an eventual winding-down of its asset program, noted Lloyds Bank in a research report.

Half an hour before the close of trade on Thursday, the EuroStoxx 50 was up 1.05% at 3,415. Germany's 10-year government bond yield was 2 basis points lower at 0.63 percent DE10YT=RR.

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