Euro drops, stocks rise as ECB vows to keep rates low

Euro drops, stocks rise as ECB vows to keep rates low

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PARIS: The euro fell and eurozone stocks surged after the European Central Bank said it expected interest rates to remain at current record lows for at least another year.

The central bank also slashed its growth forecast for the rest of the year, citing threats of rising protectionism and global trade fears, but still said it would end a mass bond-buying programme.

"The euro and British pound erased early advances versus the US dollar on the heels of the ECB decision," Charles Schwab analysts wrote.

The ECB call to hold rates until "at least" the summer of 2019 was a surprise to those expecting the central bank to hike rates at least once by then.

"Previously, the market had expected there to be a rate hike in the first half of 2019, which is now no longer the case," wrote Fawad Razaqzada, technical analyst at Forex.com.

Chris Turner, global head of strategy at ING, agreed.

"EUR/USD has sold off hard on the announcement that the ECB 'anticipates' ending QE in December this year and keep rates unchanged at least through the summer of 2019," he said.

"This has come as a disappointment to the rates market, which had priced close to 10bp of ECB rate hikes by June 2019," he added, noting however that the euro sell-off was probably overdone.

Higher interest rates typically bolster a currency as it becomes more attractive to hold.

Overall, analysts said the ECB's exit announcement from bond buying had been well-handled, as it prompted no drastic market reactions.

'NICELY DONE'

ING bank analyst Carsten Brzeski called it "a truly Solomonic compromise" between hawks eager to end support for the economy and doves fearful of undermining the expansion. "Nicely done," he said.

The rise in stocks, reversing an earlier downturn, came about as a result of euro weakness, which boosts the earnings of exporters, but also because of ECB's apparent trust in the eurozone economy to manage without its massive assistance in the future.

German 10-year bond yields - kept low for years by the bond-buying programme - eased further by just over two basis points to 0.458 per cent from 0.482 per cent, as monetary conditions in the eurozone looked to remain loose.

The ECB's momentous moves came a day after the US Federal Reserve appeared to take a different path, hiking borrowing costs and signalling several more rises through to the end of next year.

"Following on the heels of the Fed's change in messaging last night this is quite a big day for policy normalisation - the end of global QE is nigh," wrote Robert Sierra of Fitch Ratings.

Key figures around 1530 GMT:

New York - Dow Jones: FLAT at 25,200.31 points

London - FTSE 100: UP 0.8 per cent at 7,765.79 (close)

Paris - CAC 40: UP 1.4 per cent at 5,528.46 (close)

Frankfurt - DAX 30: UP 1.7 per cent at 13,107.10 (close)

EURO STOXX 50: UP 1.4 per cent at 3,527.11

Tokyo - Nikkei 225: DOWN 1.0 per cent at 22,738.61 (close)

Hong Kong - Hang Seng: DOWN 0.9 per cent at 30,440.17 (close)

Shanghai - Composite: DOWN 0.2 per cent at 3,044.16 (close)

Euro/dollar: DOWN at US$1.1634 from US$1.1791 at 2100 GMT

Pound/dollar: DOWN at US$1.3325 from US$1.3376

Dollar/yen: DOWN at 109.95 yen from 110.34 yen

Oil - Brent Crude: DOWN 70 cents at US$76.04 per barrel

Oil - West Texas Intermediate: DOWN 13 cents at US$66.51 per barrel

Source: AFP/de

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