Published: Sun, June 09, 2019
Markets | By Otis Pena

ECB pushes back rate hike again as outlook darkens

ECB pushes back rate hike again as outlook darkens

"Although the period of low rates is prolonged further, some analysts have been surprised that the European Central Bank has not indicated that the rates could also be reduced in the coming quarters".

Policy makers are "determined" to act if needed amid a "prolonged persistence of uncertainties" and the "rising threat of protectionism", Mario Draghi, ECB president stated in Vilnius after the Governing Council met.

It isn't that much of a surprise to anyone that the European Central Bank is kicking the can down the road on conversations regarding higher interest rates in Europe, however it can be considered as somewhat unexpected that the Euro is bouncing higher on this move.

LONDON, June 6 (Reuters) - Japan's yen approached a five-month high on Thursday after a lack of progress in U.S. -Mexico trade talks hurt risk sentiment and drove investors towards safe-haven currencies. "In fact, the ECB's growth and inflation expectations for this year have been revised slightly upwards, although they have been generally reduced for the following years", says Andrea Iannelli, Director of Fixed Income Investments at Fidelity.

"Core" inflation, which excludes volatile items like food and energy, is still weaker.

Besides, following ECB chair Dragh's comment, Euro had attained further bullish bias and winded down the day 0.44 percent up to 1.1275 after breaching a three-week high at 1.1309 during midday european trading hours, a level last seen on April 17th.

It has held rates at rock-bottom and completed a "quantitative easing" (QE) bond-buying scheme amounting to 2.6 trillion euros ($2.9 trillion) between 2015 and 2018.

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Like the US, the eurozone is seeing economic growth and unemployment has fallen.

But while jobs and wages - key contributors to inflation - have expanded, price growth has not followed in step as policymakers hoped.

"The uncertainty about the Brexit negotiations and. about the vulnerabilities of certain emerging market countries which are important, and more generally the uncertainty about global trade growth, have extended beyond what we believed in March and that is why we have extended our forward guidance", he said.

"The policy space is there", Draghi said, although "we have not discussed which contingency would call for which instrument". This indicates the ECB is far from considering a rate cut just yet and raised concerns the bank could be slow to respond to any new downturn in the Eurozone economy.

"The risk has grown of inflation expectations becoming "de-anchored" from the ECB's target, said Eric Dor of France's IESEG business school.

Meanwhile so-called "five-year/five-year" swaps - which reflect how financial players judge the pace of price growth between five and 10 years from now - currently nearly match their mid-2016 level of 1.25 percent, their lowest ebb under Draghi's eight-year tenure.

MXN: The Mexican Peso is on the backfoot across the EM complex after hopes of a trade agreement between the USA and Mexico faded, while a sovereign rating downgraded by Fitch added to further losses in the currency.

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