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Forex - Euro Drops as ECB to End QE But Keep Interest Rates on Hold

ForexJun 14, 2018 09:15AM ET
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© Reuters. Euro drops as ECB to end QE but keep interest rates on hold

Investing.com - The euro dropped on Thursday after the European Central Bank signaled plans to wind up its bond purchasing program stimulus program by the end of the year but reiterated that it expects to keep interest rates on hold until the middle of 2019.

The euro initially spiked to the days highs, with EUR/USD rising to 1.1852, the most since May 16, before reversing gains to trade at 1.1667 by 09:19 AM ET (13:19 GMT).

The ECB said that it anticipates its asset purchase program will end in December 2018 after halving to €15 billion per month from September 2018, down from €30 billion at present.

The euro came under pressure after the ECB also pledged to keep interest rates unchanged until at least the middle of next year.

"The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019 and in any case for as long as necessary to ensure that the evolution of inflation remains aligned with the current expectations of a sustained adjustment path," the ECB said.

The single currency came under additional selling pressure after ECB President Mario Draghi reiterated that the central bank stands ready to ramp up stimulus as needed.

Economic growth in the euro zone economy is solid, Draghi said but he noted that it has moderated due to temporary factors, such as weaker trade and pointed to rising protectionism as a particular risk.

The ECB cut its forecast for growth this year, saying it now expects euro zone GDP to increase by 2.1%, down from 2.4% in March.

It raised its inflation forecast for this year, saying it now expects consumer prices to rise by 1.7%, up from 1.4% previously.

The euro was also lower against the yen and the pound, with EUR/JPY losing 0.95% to trade at 128.92 and EUR/GBP down 0.49% to 0.8773.

The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, rose 0.67% to 94.19, the most since June 5, boosted by the weaker euro.

The ECB announcement came a day after a more hawkish sounding Federal Reserve raised interest rates for the second time this year and indicated that it now sees two more rate increases before the years end.

The Fed described the U.S. jobs market as “strong” and said economic activity had been rising at “a solid rate”.

Forex - Euro Drops as ECB to End QE But Keep Interest Rates on Hold
 

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