Euro Hits Two-Year Low as ECB Signals Stimulus Measures, Rate Cut

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The euro slid to a two-year low on Thursday after the ECB signaled it could undertake new stimulus measures and cut rates to boost flagging growth and inflation in Europe.

German government bond yields hit new lows on the prospect of the European Central Bank resuming purchases of government bonds, while European stocks were mixed.

Meanwhile the pound wobbled as new UK Prime Minister Boris Johnson said the current deal for Britain to exit the EU was unacceptable and that preparations for a no-deal Brexit were a top priority.

The ECB, which has already cut its key interest rates to historical lows and pumped unprecedented volumes of cash into the financial system via the so-called QE bond-buying scheme, had until recently been trying to move to where it could raise interest rates.

But with inflation and growth both slowing, analysts widely expected that ECB officials would signal a change in the direction of monetary policy at their Thursday meeting.

While they left the rate on the bank's main refinancing operations at zero, on its marginal lending facility at 0.25 percent and on its deposit facility at -0.4 percent, it hinted they could fall further by saying they would be kept at "their present or lower levels at least through the first half of 2020".

Moreover, the central bankers said they have tasked officials to look at options, including "new net asset purchases". 

"There are only two policy-setting meetings left for Mario Draghi beyond today and he will want to go out with a bang," said Ken Wattret, chief European economist at IHS Markit.

"An announcement of a range of easing measures (at the ECB's next monetary policy meeting) on 12 September looks like a done deal," he added.

While the euro fell as low as $1.1102, a level last seen in May 2017, it later snapped higher when ECB chief Mario Draghi began his post-meeting press conference.

"It's not so much that (Draghi) said anything particularly hawkish but he did seem a little cautious and the overall tone suggests the markets may have gotten a bit ahead of themselves in the initial reaction," said David Cheetham, chief market analyst at online trading firm XTB.

Market analyst Craig Erlam at Oanda said the euro bounced higher when Draghi said that ECB's Governing Council hadn't considered a rate cut at Thursday's meeting.

"Just because they apparently didn't discuss it today, it doesn't mean they're not planning to in September," said Erlam, adding that it was clear from the press conference the ECB feels it needs to do more.

US stocks opened lower with the Dow dipping less than a tenth of a percent in the first minute of trading.

Earlier in Asia, gains in stock markets were tempered by the emergence of doubts over a US-Chinese trade meeting next week and the announcement of massive job cuts at beleaguered Japanese carmaker Nissan.

Nissan announced after the market close that it would shed 12,500 jobs, following a 95-percent net profit plunge in the first quarter to $59 million.

- Key figures around 1330 GMT -

London - FTSE 100: DOWN less than 0.1 percent at 7,495.57 points

Paris - CAC 40: UP less than 0.1 percent at 5,608.90

Frankfurt - DAX 30: DOWN 0.5 percent at 12,454.83

EURO STOXX 50: DOWN less than 0.1 percent at 3,531.16

New York - Dow: DOWN less than 0.1 percent at 27,263.80

Tokyo - Nikkei 225: UP 0.2 percent at 21,756.55 (close)

Hong Kong - Hang Seng: UP 0.3 percent at 28,594.30 (close)

Shanghai - Composite: UP 0.5 percent at 2,937.36 (close)

Euro/dollar: UP at $1.1167 from $1.1130

Pound/dollar: UP at $1.2498 from $1.2474

Dollar/yen: UP at 108.39 yen from 108.21 yen

West Texas Intermediate: UP 66 cents at $56.54 per barrel

Brent North Sea crude: UP 61 cents at $63.79 per barrel

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