S&P 500 pulls back from record high as chip-led slump in tech weighs
* Rates to stay at current levels through H1 2020
* ECB to release new economic forecasts
* U.S., Mexico unable to reach agreement on tariffs, yen
edges up
* Already wobbly Mexican peso hit as Fitch cuts credit
rating
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
(Adds ECB decision, updates prices)
By Tom Finn
LONDON, June 6 (Reuters) - The euro jumped half a percent on
Thursday after the European Central Bank refrained from hinting
at an interest rate cut, merely pushing back the timing of its
first post-crisis rate hike.
The euro rose because investors had expected an even more
dovish signal from the ECB and for the central bank to
acknowledge weakness in economic growth.
"One of the more dovish outcomes we envisaged did not
materialise. The ECB governing council extended its forward
guidance timing, but also under-delivered on the TLTRO front,"
TS securities told clients.
The ECB said it would lend to banks at a rate just 10 basis
points above its minus 0.4% deposit rate in a new targeted
longer-term refinancing operation, or TLTRO. Money market futures are now pricing in a 45% chance of a 10
basis point euro zone rate cut by the end of year versus 75%
before the ECB statement.
The euro has strengthened recently on the back of dollar
weakness caused by rising bets on a U.S. interest rate cut.
The single currency was 0.5% higher at $1.1273 EUR=EBS
after brushing a 1-1/2-month high of $1.1307 earlier this week.
The ECB is trying to give the ailing euro zone a boost but
has not yet signaled it will take more policy action later this
year as an escalating global trade war unravels the benefits of
years of monetary stimulus.
In a speech at 1430 GMT, ECB President Mario Draghi is
expected to maintain guidance about the possibility of more
stimulus.
"Draghi would have to sound very concerned about the growth
and inflation outlook to cause a reaction in the euro," said
Antje Praefcke, an analyst at Commerzbank, wrote in a note to
clients.
Recession fears are sweeping across the world and central
banks have in recent weeks cut rates in what could signal the
start of a fresh global monetary easing cycle.
Japan's yen approached a five-month high on Thursday after a
lack of progress in U.S.-Mexico trade talks hurt risk sentiment
and drove investors towards safe-haven currencies.
The Japanese yen has been the main beneficiary from a shift
towards assets investors deem safer.
It rose as much as 0.3% to 108.07 JPY=EBS yen per dollar,
close to its strongest level since Jan. 10, after negotiations
in Washington on Wednesday aimed at averting U.S. tariffs on
Mexican goods showed little sign of progress.
U.S. President Donald Trump unexpectedly told Mexico last
week to take a harder line on curbing illegal immigration or
face 5% tariffs on all its exports to the United States.
The Mexican peso, already saddled with trade concerns, took
a hit after credit ratings agency Fitch downgraded its sovereign
debt rating on Wednesday by a notch from BBB+ to BBB, just two
notches above junk status.
The dollar index against a basket of six major currencies
.DXY stooped to a two-month low of 96.749 midweek as benchmark
U.S. yields declined sharply this week to 21-month lows on
investor risk aversion and heightened prospects of the Federal
Reserve cutting interest rates.
(Editing by Catherine Evans and Kirsten Donovan)