For 2020, the inflation forecast was raised to 1.7 percent from 1.5 percent.

The ECB said on Thursday that it could extend the bond purchases it has been carrying out over the past three years to depress borrowing costs, but it omitted a longstanding reference to increasing them.

"Given the appreciation of the euro over the past year or so, which has taken the effective exchange rate nearly back to where it was in 2014, policymakers may feel that changes in tone and policy should be gradual so as not to spark much further appreciation", Grantham wrote. This might give way for interest rates to be hiked by the mid-2019. During this time the euro has gained 17.5% against the U.S. currency.

A majority of economists in a Reuters poll taken last week said the peak of growth momentum in the euro zone was now in the rear-view mirror. The fact that the USA economy can continue to add over 200k jobs a month even at this advanced stage of the economic cycle would appear to suggest that the U.S. economy still has an element of slack in it, despite evidence of some skills shortages.

Major U.S. stock indexes closed higher and Canadian and Mexican currencies gained briefly on Thursday after U.S. President Donald Trump set tariffs on steel and aluminium imports but exempted Canada and Mexico.


European Union officials have outlined planned retaliatory measures on targeted American exports to be rolled out if the U.S. makes good on its threat, while China has said it would make "an appropriate and necessary response".

"This outlook for growth confirms our confidence that inflation will converge towards our inflation aim.over the medium term", Draghi said.

During the subsequent European Central Bank press conference, Draghi was able to tone down any hawkishness in the statement in his responses to questions from the assembled group of journalists.

"Along with tariffs, weakening your own currency becomes a weapon in a trade war", he said.

Once again, it appears that the euro itself may have started to create a feedback loop that most observers of the euro zone economy and European Central Bank policy are all too familiar with.

With regard to inflation expectations, the European Central Bank foresees the annual Harmonised Index of Consumer Prices (HICP) inflation at 1.4 percent in 2018, 1.4 percent in 2019 and 1.7 percent in 2020.


The pan-European Stoxx 600 closed up 1.1 per cent after Mr Draghi said monetary policy would remain "reactive" and that underlying inflation was subdued.

After earlier trading flat, the euro fell back 0.3 percent to $1.2377 EUR= as the dollar staged a recovery. Against the pound, the euro was 0.13% lower at £0.8916 and fell 0.65% to Y130.81 versus Japan's yen.

The ECB will be announcing its latest interest rate decisions at 12:45 GMT, with Draghi's press conference to follow around 45 minutes later.

London's benchmark FTSE 100 index closed 0.6% higher at 7,203.24 points.

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