(MENAFN– ecpulse) Europe’s major banks, the European Central Bank and the Bank of England both left their monetary policies unchanged, leaving investors hanging on a thread. The central banks decided that slow recovery of the bloc’s nations’ economies don’t need further stimulus for the time being.
The ECB held interest rates for the fourth month running in September as the Governing Council decided to maintain the benchmark refinancing rate at 0.50%, as expected. ECB Chief Mario Draghi, meanwhile, struck a decisively dovish tone saying that there was a discussion about cutting interest rates at the last policy meeting.
Eurozone’s growth projections were downwardly revised from June’s, suggesting annual GDP growth will be at 0.4 percent contraction from 0.6 percent contraction in 2013 and at 1.0 percent from June’s forecasts of 1.1 percent in 2014.
The ECB raised inflation forecasts for this year to 1.5 percent from prior estimates of 1.4 percent, while inflation is to remain unchanged in 2014 at 1.3 percent.
Main pillars that support economy outlook were released in Europe last week, hinting that the economic cycle might be advancing in the euro-area. Investors saw the currency bloc’s pullout from its longest ever slump, confirmed by a second glance at Eurozone Gross Domestic Product (GDP) data for the year’s second quarter, while business activity also increased for a second straight month.
Also, the Bank of England decided in its policy meeting to keep both interest rate and asset purchases on hold. Britain’s central bank opted to leave interest rate at its record low of 0.50 percent and amount of asset purchases at 375 billion pounds.
The UK seems to be doing better as well with activity in the dominant service sector hitting highs not seen for more than six years in August. While markets believe that central bankers will wait to confirm a much more durable recovery before any thoughts of interest rate hikes.
In the United States, markets finally received a long-awaited surprise; non-farm payrolls increased 195 thousand in June, adding to signs the labor market is recovering at quicker pace, and most importantly, supporting the case for near exit from the Fed’s stimulus program.
The upbeat NFP number flirted with the dollar, after its beat analysts’ median forecast of 165 thousand increases last month. May’s estimate was also revised higher to 195 thousand, which also helped pushing the dollar higher against a six-currency basket.
Markets have been under pressure for weeks over fears that the United States Federal Reserve will start tempering its stimulus effort. However, the turmoil intensified as potential military action in Syria fanned market anxiety and stoked oil prices after President Barack Obama failed to garner international support for a military campaign in Syria amid Russian opposition.
Last week, world leaders of the Group of 20 Nations (G20) developed and developing economies, have failed to settle their differences over the U.S. push for military action against Syria in the wake of alleged chemical attack.
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