European Central Bank holds interest rates steady
By PAN PYLAS | The Associated Press July 3, 2014 7:54AM
The European Central Bank kept its interest rates unchanged after its monthly policy meeting on Thursday despite signs that the 18-country eurozone economy is losing momentum.
Interest now turns to the ensuing press conference of ECB President Mario Draghi and anything he says about the economic outlook.
Last month, the ECB unveiled a raft of measures designed to shore up the recovery and prevent prices from falling. Among the policies announced was a reduction in the ECB’s main interest rate to 0.15 percent.
Figures released Thursday suggest the eurozone has started the summer on a fairly flat footing. Retail sales, according to Eurostat, were flat in May while the June purchasing managers’ index — a gauge of business activity — from financial information company Markit edged back to a 6-month low.
Inflation, meanwhile, remains low — at 0.5 percent, far below the official target of around 2 percent.
Though Draghi will have to compete for the attention of investors with the release of the U.S. nonfarm payrolls data, analysts said his comments could move the markets.
“Draghi has a tendency to create major swings in the market and always delivers plenty of volatility,” said Craig Erlam, market analyst at Alpari.
In particular, Erlam said he will be monitoring anything Draghi says about the high value of the euro. Though the ECB has pointed to a further stimulus if needed, the currency remains relatively strong, particularly against the dollar even though the Federal Reserve is discussing when it will start raising interest rates.
“It’s no secret that a strong euro is not ideal for the eurozone and Draghi has used the tactic of talking down the currency in the past,” said Erlam.
The euro is currently trading at $1.3650. Though that’s down on its multi-year high of near $1.40 in the spring, the currency is still markedly above its long-run average.