The euro dropped about 1% to under US$1.12 against the dollar at 2140 GMT following the ECB’s latest monetary policy meeting, where the bank said interest rates would remain at historic lows until at least the end of the year, as expected.
ECB chief Mario Draghi warned the eurozone was “coming out of, and maybe we still are in a period of continued weakness and pervasive uncertainty.”
Draghi pointed to “factors … mostly of an external source,” including “the threat of protectionism” and “geopolitical considerations,”
Eurozone equities fell after the announcement, with Frankfurt’s DAX 30 index closing down 0.6% and the Paris CAC 40 slipping 0.4%.
London’s benchmark FTSE 100 index lost 0.5%.
Wall Street followed suit, with the Dow Jones Industrial Average ending 0.8% lower for its fourth straight decline.
‘Glass half-empty’
Economist Marcel Fratzscher of Berlin-based think-tank DIW, “the ECB sent a surprisingly clear warning signal today.”
“The eurozone economy is weakening noticeably and risks are rising.”
Economist Florian Hense of Berenberg bank agreed, saying that “previously, the ECB may have seen the glass half-full. With today’s moves, it switched viewing the glass as half-empty.”
The ECB also announced it would renew its “TLTRO” scheme, which allows banks to get super-cheap loans, in a bid to help support the eurozone economy and keep credit flowing.
European bank stocks fell sharply on the news.
“Investors realised that this very low-interest rate environment was destined to last longer than expected, which resulted in a sharp drop in bond yields, as well as creating a toxic environment for banks, whose value fell sharply,” said Daniel Larrouturou, a senior executive at investment firm Diamant Bleu Gestion.
However similar drops followed the announcement of previous TLTRO schemes in September 2014 and June 2016, Frederic Rozier, an asset manager at Mirabaud France in Paris, told AFP.
‘Dovish minded’
Unveiling the updated forecasts, Draghi said the bank now expects the euro zone’s economy to expand by just 1.1% this year, down from the previous estimate of 1.7%.
He also said inflation would slow to 1.2% this year, compared with the 1.6% previously forecast, pushing the ECB farther from its target of just under 2.0%.
Meanwhile, a slowdown in emerging markets like China, which earlier this week pared its own growth forecasts, provided further signs of weakness in the global economy.
The United States has also had a series of mixed economic reports, with the Department of Labour reporting on Thursday that weekly jobless claims dipped by 3,000 to 223,000.
The report comes ahead of Friday’s key jobs report for February.
Analysts expect the US added 173,000 jobs last month and that the unemployment rate dipped to 3.8% from 4.0%.