EUR USD Drops After ECB Negative Deposit Rate

The euro fell to a four-month low against the dollar after the European Central Bank cut interest rates, as expected, and said it would announce further policy easing measures to tackle the threat of disinflation.

The ECB cut the deposit rate to -0.10 percent, the main refinancing rate to 0.15 percent, and the marginal lending rate – or emergency borrowing rate – to 0.40 percent. Markets now turn their attention to ECB President Mario Draghi’s press conference at 1230 GMT.

The ECB was widely expected to cut interest rates by 10-15 basis points, sending the deposit rate into negative territory for the first time and injecting liquidity into the banking system. The market is also expecting the ECB to offer longer-term loans in a bid to boost lending, without launching large-scale asset purchases as the Bank of Japan has done.

Many see that as the first step towards quantitative easing by the ECB, prompting speculators and investors to build up large bets against the euro. Traders said if the ECB falls short of expectations, the euro could bounce.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza