It has been a brutal race to the bottom for currencies. And there have been very few winners as economies remain bruised and battered after interest rates were slashed, the lower bound tested through negative deposit rates and monetary policy re-written to explore more inventive options.
But in the latest chapter, as Europe’s central bank gets more abstract, action has swung to credit easing rather than the hefty burden born by rate cuts This maybe, just maybe, could signal the end of the road for not only negative rates but currency wars.
The European Central Bank President Mario Draghi served up what is thought to be the final rate cut in Europe for this economic cycle, taking the deposit rate to -0.40 percent. At the same time, he slammed the door shut on an even deeper foray into negative rates. The euro’s haywire 4 euro cents move in one session last Thursday reflected changing market perceptions about interest rate differentials and fair value for the euro.
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Craig Erlam
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