European Central Bank pushes back rate hike again as outlook darkens

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ECB Ponders Further Monetary Stimulus To Counter Trade, Brexit Risks

"From my point of view, this should not be one of the ECB's permanent instruments", Nowotny, who heads Austria's central bank, told a news conference in Vienna.

"We have seen an impressive rally in core bond markets, especially U.S. Treasuries, indicating that investors anticipate rate cuts soon", said KBC rates strategist Mathias van der Jeugt.

Therefore, the central bank may not be raising rates in 2020.

The dollar index against a basket of six major currencies stooped to a two-month low of 96.749 midweek as benchmark US yields declined sharply this week to 21-month lows on investor risk aversion and heightened prospects of the Federal Reserve cutting interest rates.

Although the simple observation that each of the G10 currencies are trading higher against the USD shows that the bounce higher in the Euro has not got much to do with the European Central Bank rate decision, but everything to do with the spell of weakness that has transpired in the US Dollar.

Growth projections by the central bank were revised up to 1.2% for this year but marked down to 1.4% for both 2020 and 2021.

The key market inflation measure, tracked by the European Central Bank, has fallen 32 basis points since the start of 2019, but a year ago it stood at 1.75%. Shares of German property companies Vonovia and Deutsche Wohnen fell 2.1% and 5.1%, respectively, following reports that Berlin authorities were planning to impose a cap on rents.

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After a weak patch for the eurozone in late 2018, economic expansion bounced back between January and March, gaining 0.4 percent from the last quarter.

Observers have pointed to trade disputes between Washington and key partners like China, Mexico and Europe as one reason for sluggish gross domestic product growth and inflation.

On top of overseas threats, worries closer to home include a budget confrontation between Brussels and Rome, elections in Greece and a possible no-deal Brexit, following the looming departure of British Prime Minister Theresa May.

St. Louis Federal Reserve president James Bullard said on Monday that a US interest rate cut "may be warranted soon" given risks to global growth posed by trade tensions and weak USA inflation.

Economists expect the ECB's next move to entail policy easing rather than tightening.

Meanwhile so-called "five-year/five-year" swaps - which reflect how financial players judge the pace of price growth between five and 10 years from now - currently nearly match their mid-2016 level of 1.25 percent, their lowest ebb under Draghi's eight-year tenure. The single currency has brushed a 1-1/2-month high of $1.1307 this week.

A changing of the guard is under way at the European Central Bank, with a new chief economist already appointed and Draghi set to depart on October 31.

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