Gold steadies ahead of European Central Bank meet

Andre KleinMar 11, 2018

Interest rates were left unchanged which was to be expected, however they removed the wording "easing bias" from the asset purchasing statement which has led investors to believe that the Quantitative Easing program will be tapered towards the back end of the year and removed before the start of 2019.

Southern European debt, also sensitive to changes in ECB monetary policy, saw a strong rally, benefiting from Draghi's dovish line. There are no changes compared to November, when it was made a decision to reduce asset-buying program in half and lengn it until September.

'If the outlook becomes less favourable... the Governing Council stands ready to increase the asset purchase programme (APP) in terms of size and/or duration'.

'In itself this was not market moving, but Mario Draghi succeeded in talking the Euro - and Eurozone bond yields - down in his ensuing press conference'.

European stocks had opened in positive territory as tensions over planned USA tariffs on steel and aluminum imports eased after the White House indicated that major trading partners Canada and Mexico could be exempt.

The given reason for scaling back stimulus expectations was an improving outlook for Europe's economic growth and inflation rate.

Turning to the monetary analysis, broad money (M3) continues to expand at a robust pace, with an annual rate of growth of 4.6 percent in January 2018, unchanged from the previous month, reflecting the impact of the ECB's monetary policy measures and the low opportunity cost of holding the most liquid deposits. Euro/dollar traded lower at 1.2370 (-0.34%) ahead of the European Central Bank rate announcement where any clues on the ECB's plans to change its forward guidance on monetary policy could bring fresh volatility to the currency.

The ECB also repeated that its bond purchase program will continue as planned.

Eurozone countries enjoy the strongest economic growth in a decade. Bank of England policy makers say they may need to raise interest rates faster than previously anticipated and new Federal Reserve Chairman Jerome Powell has talked up the economy so much that there's speculation of as many as four US hikes this year.

GBP/EUR Exchange Rate Forecast: UK Trade Figures to Lift Sterling?

March U.S. Dollar Index futures settled at 90.156, up 0.549 or +0.61%.

A key indicator for the European Central Bank is wage increases and a deal last month between German union IG Metall and employers for a 4.3 per cent rise over 27 months will have been seen as some evidence of a return to normal earnings growth.

Most bond yields across the single currency bloc were 1-2 basis points higher in early trade, reflecting some market caution ahead of closely-watched USA monthly jobs data due later in the day. During this time the euro has gained 17.5% against the USA currency.

Let's not forget that during a period of more than a year when U.S. policy normalisation is well advanced, the Federal Reserve's interest rate increases have done nothing to support the dollar.

European Union officials have outlined planned retaliatory measures on targeted American exports to be rolled out if the U.S. makes good on its threat, while China has said it would make 'an appropriate and necessary response.

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