European Central Bank leaves key rates on hold as expected

A sharp sell-off in bonds over the last week has been pushing up global borrowing costs, meaning there is more focus than ever on when the European Central Bank ends its 2.55 trillion euro ($3.2 trillion), three-year stimulus programme.

At a press conference, ECB President Mario Draghi admitted some moderation of the Eurozone economy.

World markets remained edgy on Thursday, with shares eking out gains amid concern over the global economic outlook and with US bond yields at four-year highs after breaking above the psychologically significant 3 percent line this week.

Asia also rose overnight as record quarterly profits from Samsung helped offset nerves in China after reports that USA prosecutors have been investigating whether Chinese tech giant Huawei violated Iran sanctions.

On Wednesday, the U.S. Dow Jones benchmark snapped a five-day losing streak thanks to more strong corporate earnings.

"But with Treasury yields rising, people are worrying we may be peaking on profits, or if GDP growth is peaking and we are now in a situation where markets are getting very nervous", he said, noting the U.S. Federal Reserve appeared to be in no mood to brake its rate-hike program. The Nasdaq was expected to benefit on Thursday after forecast-beating after-market results from data-scandal hit Facebook.

Deutsche Bank fell 2.6 per cent after the bank said it would scale back its bond and equities trading in a major overhaul of its investment bank, after reporting a 79 per cent drop in net profit in the first quarter.

An 11 percent oil price rise this year, on top of last year's 18 percent jump, is increasing inflation levels and some of the bank's top policymakers have said they expect the recent soft patch in euro zone economic data to pass.

With today's decision, the ECB's bond purchases, aimed at stimulating growth and inflation through rock-bottom debt costs, will continue at €30 billion a month at least until the end of September, or beyond if needed to prop up inflation.

"The risk is that he is less dovish than expected", Green added.

Analyst Teppei Ino said the currency might soon test some key technical levels close to 110, and one level is 109.65, which is a 50 percent retracement of its November to March fall, while the other is its 200-day moving average near 110.27. It fetched $1.21775 before the European Central Bank meeting. This could send the euro lower.

"With equity market sentiment holding firm in the face of rising bond yields, the almighty dollar could move through G-10 currency markets like a wrecking ball", Innes added.

  • Joe Gonzales