Euro hits session high as ECB strikes a dovish tone with revised forward guidance - CNBC

The euro jumped to a session high against the U.S. dollar on Thursday, after the European Central Bank (ECB) said it would delay its first post-crisis interest rate hike until at least the middle of next year.

In a move that was well-flagged, ECB President Mario Draghi also offered to pay banks if they borrow cash from the central bank and pass it on to households and firms.

Trade tensions and fears of a global recession have put markets in a state of flux this week, with market participants increasingly hopeful ECB President Mario Draghi could signal a late burst of monetary support before his term ends in October.

The central bank said interest rates on its marginal lending facility and deposit facility would remain unchanged at 0%, 0.25% and -0.40%, respectively. These have been at record lows following the euro sovereign debt crisis of 2011 in an effort to boost inflation and stimulate growth.

In a surprise revision to its forward guidance, the ECB said in a statement that the governing council "now expects the key ECB interest rates to remain at their present levels at least through the first half of 2020."

The euro climbed 0.4% to reach a session high of $1.1266 shortly after the announcement.

Investors are expected to closely monitor comments from Draghi's news conference at 1:30 p.m. London time. He is also set to unveil fresh staff economic forecasts that could show lower growth next year.

ECB policymakers met in Vilnius, Lithuania this week to review updated forecasts and plunging inflation expectations.

'Playing to the markets'

"It is more dovish than we probably expected ... But I wouldn't say the ECB is really getting ahead of the curve," Florian Hense, European economist at Berenberg, told CNBC's Julianna Tatelbaum on Thursday.

Hense said he believed the ECB's revised forward guidance showed the central bank was happy to follow in the footsteps of the Federal Reserve by "playing to the markets."

The ECB's interest rate announcement comes at a time when the mood has shifted among some of its global peers. Australia's central bank cut interest rates for the first time in three years on Tuesday, while the U.S. Federal Reserve has recently signaled an openness to easing if necessary.

Meanwhile, India's central bank cut its benchmark interest rate for third time this year on Thursday and expectations are building that the Bank of Japan could also add stimulus soon.

In April, Draghi said policymakers at the ECB would look at how monetary policy is working when setting the terms for its new cheap loan program for banks — the TLTROs (targeted longer-term refinancing operations).

Essentially, these loans should make the euro zone's banks lend more to the real economy. They have a negative deposit rate so they would pay lenders for taking the cash, meaning it's a strong incentive for the banks to use them.

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