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Europe close: Stocks dip as ECB's Draghi dashes hopes for policy change

Europe close: Stocks dip as ECB's Draghi dashes hopes for policy changeā€

The ECB meeting is expected to establish the foundation for a policy shift in the fall which ECB President Mario Draghi hinted to last month in a surprisingly hawkish announcement.

Attention now switches to European Central Bank president Mario Draghi's news conference, at which he will explain the decision.

The ECB, the chief monetary authority for the countries that use the euro currency, left its interest rate benchmark unchanged at zero and left untouched the language of its policy statement, in which it said it could even increase the purchases, if needed.

The bond-buying programme, together with ultra-low interest rates, was created to fend off the threat of deflation hitting the eurozone. It's now trading at $1.152, close to an eight-month high.

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However, M&G fixed interest investment director Anthony Doyle says tapering of asset purchases, which he anticipates will be addressed at the September meeting, represents a reduction in the degree of monetary stimulus rather than a fast interest rate tightening cycle. Yet Draghi said that prices were not picking up as fast as they had in previous recoveries, for a number of reasons.

"Draghi's choice to state that the European Central Bank remain willing to raise QE if necessary was largely disregarded, for we all know that given the current rate of economic improvement, it is only a matter of time until Draghi changes his tone".

Italian, Portuguese and Spanish government bonds are seen as the biggest beneficiaries of the central bank's ultra-loose monetary policy stance of the past few years, and some worry that the market is not fully reflecting the increased risk these countries now face if the ECB moves towards tighter policy.

'Tapering will come but the path towards the tapering announcement will be extremely gradual, as the European Central Bank does not want to distort markets.

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Asian equities rose to the highest level in nearly 10 years as the euro weakened and USA dollar remained near its one-year low on hopes the European Central Bank and Bank of Japan will keep policies supportive amid concerns over the pace of reforms in the U.S.

Earlier, the pound had been buoyed by better than expected official figures on retail sales for June, before the gains faded. The company said it expects full-year underlying operating margin to grow by at least 100 basis points, as against 80 basis points projected earlier.

"The dollar has fallen quite quickly in a relatively short span of time and any signs of stabilization in economic data might trigger a burst of short covering so it is a good time to take some profits", said Viraj Patel, an FX strategist at ING Bank in London.

The ECB has kept interest rates unchanged since March 2016, when all three were cut.

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The yen meanwhile had weakened to 112.325 per United States dollar after the BOJ pushed back its projected timing for hitting its 2% inflation target until 2020.



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