Euro rallies after European Central Bank decision, Draghi comments

The ECB could announce another 0.1 to 0.2 percentage point cut to its deposit rate, or changes to its €60bn (£42.5bn) a month asset-buying programme. Interest rates and the marginal lending rate were unsurprisingly left unchanged at 0.05% and 0.30% respectively.

The euro fell 0.6 per cent to $1.0553, while the dollar index, which measures the greenback against 6 top world currencies, was hovering just below a 12-1/2-year high of 100.51 it had hit overnight.

The ECB extended its asset-purchase programme, known as quantitative easing, by six months to March 2017, but did not beef up monthly purchases as many had hoped.

ECB Board member Jens Weidmann, who also heads Germany’s national central bank, has spoken out recently, saying that existing measures need time to work and that the outlook for the economy was not that bad.

Yellen had said on Wednesday she was “looking forward” to a USA interest rate hike, expressing confidence in the US economy and warning against waiting too long to raise rates. She stated that since the Fed’s October meeting, the economic and financial information received has been consistent with its expectations of continued improvement in the U.S. labour market and also noted that the Fed policymakers were now confident in the return of inflation to 2.0% as the effects of low energy and import prices fade.

REACTION: The ECB’s announcement caused the euro to jump against the dollar, moving up almost 2 percent to $1.0801. The ECB trimmed its forecasts for inflation next year, to 1 percent from 1.1 percent previously, and for 2017 to 1.6 percent from 1.7 percent.

It could also make its asset purchases open-ended, removing the reference to an end next September and maintaining the scheme until there is a sustained upswing in inflation.

The 2017 revision takes the bank’s projection farther from its goal of just under 2 percent and helps to justify the bank’s decision Thursday to extend more economic stimulus aimed at raising weak inflation of only 0.1 percent annually.

China stocks rose for the fourth straight day on Thursday, recovering most of last Friday’s 5-percent loss, as banking and property heavyweights propped up main indexes, while fears arising from the government’s crackdown on brokerages receded.

The eurozone economy as a whole grew by 0.3 percent in the third quarter, with falling unemployment and some indicators pointing up.

The ECB also said it will announce further measures at a news conference later by President Mario Draghi.

“This is less of a rate cut than markets and we had expected, probably showing that the hawks at the European Central Bank had more leverage than expected”, said Carsten Brzeski, an economist at ING. Meanwhile, survey data released on Thursday confirmed that the private sector growth improved in November.