European Central Bank leaves monetary policy on hold in March

However, the ECB’s economic projections were more optimistic, while Draghi adopted a more hawkish tone during the Q&A part of the press conference.

That left sterling on track for its weakest fortnightly performance against the euro in five months.

Most euro zone bond yields were 1-2 bps higher before the European Central Bank policy decision, with 10-year German yields rising 1.6 bps to 0.39 percent.

The euro fell to US$1.0551 at 1.49pm Frankfurt time (8.49pm, Singapore time).

Draghi, when asked about the political threat to the European Union and the euro, said: “The euro is being perceived as being the prerequisite of the single market”.

Oil skidded again on Friday, pushing prices to three-month lows as investors continued to flee bullish positions on worries that OPEC-led production cuts have not yet reduced a global glut of crude. German economists, media and politicians have bemoaned low interest rates on savings and pension products.

But Draghi allowed himself a touch of optimism in responding to journalists’ questions about looming political risks.

The upcoming Dutch election is likely to have a significant effect on the euro in the future.

While expected, the decision showed the ECB’s leadership was resisting calls from Germany to start winding down its 2.3 trillion euro ($2.43 trillion) bond-buying scheme, or at least signal its intention to do so, as growth and inflation rebound. It targets an inflation rate of just below 2 percent.

Quantitative easing was extended until December 2017 at the end of previous year, although the rate of purchases was reduced from €60bn (£52bn) per month starting in April.

Facing low inflation and weak growth, the European Central Bank has kept interest rates in negative territory and bonds purchases at €80 billion a month, promising substantial accommodation and an extended market presence to aid the euro zone’s recovery.

The euro area’s real GDP also climbed by 0.4% quarter on quarter, during Q4 2016. While oil markets may be seen to be trapped in a fierce tug of war with OPEC and U.S Shale, a resurgent Dollar from the prospects of higher United States interest should expose WTI to further downside shocks. But ECB President Mario Draghi on Thursday declared the threat of deflation over and gently indicated that, while the flow of stimulus via the bond-buying program will continue-and could be expanded if necessary-policy makers no longer have a “sense of urgency” over the need to deploy even more tools.

Draghi also said incoming data increase confidence that the economic expansion will continue “to firm and broaden”.

The EU’s headline inflation, however, increased due to rising energy and food price inflation, still, the underlying inflation over these sectors remain to be quiet. As well as their statement yesterday, it would be unconventional for the central bank to start tightening rates while easing at the same time.

“The reason is simple because it is hard to write off the positive impact of growing inflation and growth [.] It is in Draghi’s interest to keep buying more time until we have navigated through all these [political] storms and sailing becomes smoother”.