Dollar Rallies after Draghi Signals Normalization Would Be Gradual

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The ECB is expected to call time on buying new bonds under the QE programme by the end of this year, but it is also expected to maintain interest rates at record lows "well past the horizon of the net asset purchases". However, in its communiqué it has eliminated a reference to a possible increase in this procurement programme if situation is distorted, which is interpreted as a change of discourse towards gradual withdrawal of stimulus and normalization of monetary policy.

At Thursday's meeting, policy makers unanimously made a decision to change their guidance, though they kept an option to extend the program further after September, when bond buying is now scheduled to expire. The official statement conspicuously omitted a pledge to "increase the asset purchase program (APP) in terms of size and/or duration" in the event that "the outlook becomes less favorable".

European Central Bank chief Mario Draghi raised concerns today about the state of worldwide relations after US President Donald Trump sparked fears of a trade war with his threat to impose punitive tariffs on steel and aluminium imports.

But while eurozone GDP expansion surged to 2.3 percent previous year, price growth has not picked up in step.

US President Donald Trump's plan to impose tariffs on steel and aluminium imports as well as threats of retaliation by the US's biggest trading partners have raised the spectre of a global trade war. Also the central bankers did not changed the plan for quantitative easing.

The ECB staff macroeconomic projections presented in March are optimistic on growth.

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Economic growth in the eurozone, while robust, has never reached levels in this cycle to have caused any inflationary problems. The inflation projection for 2020 was left unchanged at 1.7 percent.

European Central Bank chose to keep its benchmark interest rate unchanged at 0.00 percent, holding its deposit facility rate at its current level of -0.4 percent and its marginal lending rate at 0.25 percent. The ECB has said purchases will continue at 30 billion euros ($37 billion) monthly at least through September.

A majority of economists in a Reuters poll taken last week said the peak of growth momentum in the euro zone was now in the rear-view mirror. New filings for unemployment benefits had previously been at a 48-year low. U.S. gold futures for April delivery settled down US$5.90, or 0.4 per cent, at US$1,321.70 per ounce.

The bank still expects inflation to hit 1.7 percent in 2020 - inching closer to the ECB's target of just under 2.0 percent. In antipodean currencies, aussie/dollar and kiwi/dollar retreated to 0.7800 (-0.29%) and 0.7263 (-0.29%) respectively on the back of potential trade risks as Australia and New Zealand are highly exposed to commodity prices which would get into a bearish run if the U.S. tariff measures materialize. It would be interesting though to see whether policymakers are preparing the ground to exit stimulus, something that has been recently echoed.

The highlight in the economic calendar on Thursday is weekly United States initial jobless claims - which are a prelude to the monthly jobs report on Friday - at 1330 GMT.

The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households, access to financing ‒ notably for small and medium-sized enterprises ‒ and credit flows across the euro area.

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