Trump tariffs cast dovish shadow over European Central Bank

EUR  USD Reversal Pattern on the Horizon? Is Volatility Underpriced

"There is a certain worry or concern about the state of worldwide relations, because if you put tariffs against what are your allies, one wonders who the enemies are", said Draghi.

However, the statement omitted any mention of the commitment to increase the size and duration of the programme if the economic outlook was to worsen.

United States stocks fluctuated in thin trading as investors weighed the potential fallout from the release of USA president Donald Trump's tariff plan and set their sights on Friday's jobs report. Some dealers have traded on the possibility that the tariff threat was a negotiating ploy in trade talks with USA neighbors.

Premier Global Alpha Growth manager Jake Robbins described the removal of the reference to the bond-buying programme's possible extension as "slightly unexpected", although added protectionism still weighed on European Central Bank monetary policy.

The euro fell and bond yields in southern Europe hit one-month lows on Thursday, after the European Central Bank dropped a pledge to boost bond buying if needed but suggested subdued inflation would ensure a slow route back to policy normalisation.

The most important fallout, Draghi said, would be if tariffs raised fears about the economy. He said that a drop in confidence would also hurt economic output and inflation.

"Talk of greater available slack and the clear easing of inflation pressures has taken the pressure off the committee to act, and with a typically dovish Mario Draghi allowed to maintain an accommodative stance going forward, today is clearly a case of taking with one hand and giving with the other", he wrote.

Along with record-low interest rates, bond-buying was created to stoke economic growth by pumping cash into the financial system, helping boost inflation to the ECB's own target of just under 2 percent. The fund targets companies that are now members of MSCI Europe and have increased dividend payments each year for at least 10 years and are thus stable in nature. Since financial stocks are likely to benefit from a rising rate environment, EUFN may gain ahead.

During the subsequent European Central Bank press conference, Draghi was able to tone down any hawkishness in the statement in his responses to questions from the assembled group of journalists.

"However, with the unemployment rate lower than it was and growth strong, the economy is clearly in less need of stimulus". But while growth has bounced back, inflation has been slow to respond.

Draghi struck a decidedly more cautious tone as he said the ECB's monetary policy would remain "reactive" amid an outlook of subdued Eurozone inflation.

The bond purchases were started March 2015 to help the eurozone bounce back from troubles over government and bank debt in several member countries including Greece, Ireland, Portugal, Cyprus, Spain and Italy. That constitutes a step towards ending the crisis-era stimulus measures.

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