ECB Holds Key Interest Rate, Euro Trades in Consolidation Range
The European single currency declined versus the U.S. dollar on Thursday following a decision to hold the benchmark interest rate at a record low 1 percent by the ECB (European Central Bank). The ECB advised that Inflation rates will most likely stay above 2% in 2012 but they expect price developments to be in line with price stability.
ECB president Mario Draghi’s press conference, after the key rate data release, provided no hint of future monetary policy stimulus action or a rate decrease ahead. The EUR/USD exchange rate has seen a prolonged consolidation phase over recent weeks and the news today could bring more of the same for the highly liquid Forex currency pair.
The U.S. dollar index has seen a third consecutive daily rise but the reaction on Thursday was muted as USD bears pared back much of the earlier gains and closed the day under the 20 Day SMA following the ECB interest rate event risk. The greenback has experienced a minor corrective rally over the last few days on safe haven flows as higher yielding risk assets have fallen out of favor.
Spanish and Italian 10-year bond yields continued to be on the high side and European markets retraced earlier gains on a failure by Mr Draghi to show the ECB was willing to offer additional support; markets continue to worry about the deteriorating economic outlook in the euro-zone area and rising unemployment.
The Frankfurt based ECB controls monetary policy and aims to maintain price stability for the 17 Eurozone states; this makes them one of the most powerful central banks and financial market speculators are constantly looking for clues regarding future policies at these press conferences.
The Introductory statement to the ECB press conference can be found here.