European Central Bank leaves rates unchanged, drops easing bias

Euro jumps as ECB hints at the end of quantitative easing

The euro was up 0.02 percent to $1.2313, while the dollar index rose 0.53 percent. A strict language on the trade front could wake euro bears up.

The U.S. Dollar rose against a basket of major currencies with the exception of the Canadian Dollar on Thursday. As a result, the bank could be forced to change its monetary policy. That is, investor demand for higher risk assets like stocks are likely to weigh on gold prices.

Wall Street stocks were also higher in late morning trade, with the Dow up 0.2%.

European stocks had opened in positive territory as tensions over planned US tariffs on steel and aluminum imports eased after the White House indicated that major trading partners Canada and Mexico could be exempt.

Stimulus withdrawal could mean a stronger euro versus the dollar, higher returns on savings and stiffer borrowing costs for indebted governments in the 19-country eurozone. Germany's DAX 30 index finished up 0.9% at 12,355.57. The FTSE 100 index closed up 0.2% at 7,157.84 on Wednesday. USA stock futures were mixed. WTI crude and Brent slipped to $61.09 (-0.10%) and $64.17 (-0.26%) per barrel respectively.

European Central Bank president Mario Draghi raised concerns about worldwide relations in his press conference following the decision.

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"Given the risks around global trade as a result of United States imposed tariffs and some extra political risk in Italy, it is unlikely that the European Central Bank will move any faster than markets expect anytime soon, particularly given inflation remains subdued well below their targets", Robbins said. After a political deadlock in Italy and Trump's recent tariff proposals on aluminum and steel imports, the European Central Bank will probably hold a cautious tone. It slightly reduced its 2019 inflation forecast to 1.7% from 1.9%.

Despite the longest run of economic growth in Japan for 28 years, BoJ Governor Haruhiko Kuroda made clear on Friday that talk in the market of an exit to the programme is premature. The ECB Chief also noted that the immediate spillover of USA import tariffs on foreign steel and aluminum are unlikely to be that big.

The greenback had weakened sharply following the resignation on Tuesday of Gary Cohn, the top economic adviser to the White House who was seen as seen as a bulwark against protectionism in President Donald Trump's administration. The resignation of Cohen has been seen as a sign that the White House intends to follow through with the imposition of its tariffs on steel and aluminum, despite nearly universal opposition from trading partners and indeed Republicans in Congress. It had weakened on Wednesday to C$1.3002 CAD=D4 on Wednesday before recovering on the prospect that Trump's tariffs may exempt Canada and Mexico. In regards to economic data releases, inflation releases are set to steal the headlines.

The ECB is expected to keep policy unchanged on Thursday but could tweak its accompanying statement to offer some clues about plans to end its unprecedented bond purchases this year. Analysts predict consumer spending to decline sharply by 1.2% on a yearly basis, recording its biggest decline since April.

In February eurozone inflation actually fell to 1.2 percent, its lowest point since December 2016.

"Given the appreciation of the euro over the past year or so, which has taken the effective exchange rate nearly back to where it was in 2014, policymakers may feel that changes in tone and policy should be gradual so as not to spark much further appreciation", Grantham wrote. It is not a solicitation to make any exchange in commodities, securities or other financial instruments.

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