ECB Rate Cut and QE Boost Was Short-lived As Doubts Remain

German bond yields and the euro rebounded on Thursday and European banking shares were whipsawed as doubts crept in about the effectiveness of the ECB’s decision to cut interest rates and pledge an indefinite supply of asset purchases.

The ECB cut its deposit rate by 10 basis points to a record low of -0.5%, promised that rates would stay low for longer and said it would restart bond purchases at a rate of 20 billion euros a month from Nov. 1.

It also eased the terms of its long-term loan facility to banks and said it would introduce a multi-tier deposit rate facility to help them.



The package of measures initially cheered investors whose expectations for aggressive easing had recently been dented by some ECB policymakers’ comments.

Italy’s 10-year bond yield fell to a record low at 0.76%, pushing the gap over German peers to 136 basis points — its tightest since May 2018 while German long-dated bonds saw yields tumble as much as 11 basis points on the day.

But over the course of Mario Draghi’s press conference, German borrowing costs crept higher while the euro rose off lows

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