Europe close: Shares drop as euro and Japanese yen snap higher

European stocks reversed opening gains to trade lower as the euro and yen advanced against the US dollar, after being hit by the Federal Reserve’s dovish stance on Wednesday.

The benchmark DJ Europe Stoxx 600 index slipped 0.09% to 340.68, Germany’s DAX was 0.91% lower at 9.892.20 and France’s CAC 40 was off 0.45% to 4,422.89. Europe’s single currency gained 0.94% to 1.1320 versus the greenback.

London’s FTSE 100 on the other hand advanced, propped up by sharp gains among miners.

For its part, the Bank of England left interest rates and the size of its asset purchase programme on hold at 0.5% and £375bn, as widely expected. The MPC noted the impact which uncertainty around the referendum was having on the economy which, predictably, but probably erroneously, led some observers to declare that it had entered into the political fray ahead of the referendum.

Oil prices were in the black, with West Texas Intermediate 3.63% firmer at $39.97 a barrel and Brent crude up 2.514% at $41.38.

Overnight on Wednesday, the Federal Reserve left the target range for the benchmark federal funds rate unchanged at 0.25% to 0.5%, as widely expected, but the accompanying statement was much less hawkish than expected.

The Fed, which lifted interest rates for the first time in nearly a decade back in December, said rate rises this year would be more gradual than previously thought, with two on the cards versus the four projected at the end of last year.

"Proceeding cautiously will allow us to verify that the labour market is continuing to strengthen given the economic risks from abroad," said Fed chairwoman Janet Yellen.

The Fed's decision was in contrast to recent moves from the Bank of Japan and the European Central Bank, both of which took interest rates into negative territory.

Stocks had opened in the black but the gains soon evaporated as the dollar was knocked by the Fed’s dovish stance, with a stronger euro weighing on European exporters.

“The economic projections that accompanied the release betrayed the Fed’s dovish turn. Forecasts for inflation were significantly worse than the last projections in December, and member “dot plot” estimations of interest rates had largely moved below 1%. The Fed has backed down from its earlier optimism and despite to raise rates above 1% this year, and last night’s releases made this very clear,” said Monex.

The euro also got a boost from data showing inflation in the Eurozone rose more than expected in February.

On a month-on-month basis, the consumer price index was up 0.2% versus a consensus estimate of a 0.1% rise and a big reversal from the 1.4% drop in January.

On the year, CPI remained in negative territory, at -0.2%, as forecast, according to the figures released by Eurostat.

The core rate, which strips out volatile items like fuel and food prices, printed at 0.8%, beating forecasts of 0.7%.

In corporate news, Deutsche Lufthansa slid after it forecast weak earnings growth for 2016.

Anglo American surged in London as metals prices pushed up, while Rio Tinto rose on news chief executive Sam Walsh will retire in July after three years in the job.

Cement maker LafargeHolcim rallied after its full-year earnings beat analysts’ expectations.