LONDON, June 6 (Reuters) - The euro surged as much as 0.8% against the dollar on Thursday after the European Central Bank held off on hinting that it was considering cutting interest rates and its president Mario Draghi said economic data was not too bad.
The bank also announced details of its new TLTRO — cheap loan lending programme for banks — offering to lend to them at minus 0.3%. This was slightly less generous than expected.
The euro later slipped back from a seven-week high of $1.1309 to stand 0.5% higher, at $1.1274
The rise in euro zone government bond yields also accelerated after Draghi said that he was not that worried about inflation expectations “de-anchoring”.
German 5-year government bond yields were up as much as five basis points to -0.55% and 10-year yields hit the day’s high of -0.207%.
Italian 10-year bond yields rose four bps to 2.53% versus 2.45% before the ECB statement was released.
“The biggest news for markets is not that the ECB won’t hike, but that the ECB won’t cut rates over the next 12 months,” Frederik Ducrozet, a strategist at Pictet Wealth Management said on Twitter.
However, the euro’s strength sent the region’s stock markets’ initial rebound into reverse, with Germany’s export reliant benchmark slipping 0.3% and a pan-European equity index turning negative.
Euro zone bank stocks too fell into the red and were down 0.6% while Italian banks, after an initial 2% jump, fell back and were down 0.4% on the day.
“The new TLTRO will be offered at a slightly worse rate than the last time,” Marchel Alexandrovich, Senior European Economist at Jefferies said. (Reporting by London markets team; writing by Sujata Rao Editing by Tommy Wilkes)