The euro recovered all of the losses caused by a gunfire of rate cuts and new motivation from the European Central Bank on Thursday, Moving to a 3-week best price against the USD after the bank's chief Mario Draghi said more cuts were unlikely.
The EUR rose above 1.1100 USD while it jumped more than 1 percent against the JPY to trade at 126.215 JPY.
The euro had before hit an SIX-week low price of 1.08215 USD after the EUROPEAN CENTRAL BANK unveiled a raft of measures, most of them not expected by markets, to change growth and inflation.
The European Central Bank is clearly growing desperate. For the 2nd time in 3 months, Mario Draghi unleashed a truculent combination of monetary stimulates. Here are the SIX main events announced today, each dominant in their own right:
i) Main Refinancing Rate Cut to Zero percent from 0.05 percent
ii) Deposit Rate Cut to -0.4 percent from -0.3 percent
ii) QE Increased to 80 Billion’s Euros per Month from 60 Billion’s
iv) Introduce New 4 Year TLTROs
v) Expanded Asset Purchases to Include Corporate Bonds
vi) Lowers 2016 and 2017 GDP and Inflation Forecasts
Unfortunately, investors are disappointed that the European Central Bank thinks that they have quiet enough. They are upset by the small deposit rate cut, the failure to extend the last date of asset purchases and the lack of a tiered price system but most prominently they are concerned that the ECB has run out of ammunition and have chosen as a replacement for overwhelmingly agree to throw everything into the decayed at once. Today's actions revolve the depth of their concerns about the domestic and global market - while the euro may reach as high as 1.1400, each cent rise makes us wonder how much more the Euro-zone economy can handle it own. The European Central Bank may have taken big forward to fuel the economy but a rising euro currency restricts economic activity especially for a zone so deeply dependent on exports.
The European Central Bank monetary policy announced triggered widespread volatility in currencies. The United States dollar plunged against the EUR, JPY, GBP but the CAD and AUD is the float. NZDUSD saw very little action before and after the rate announced. The improve in the GBP & CAD become quite understandable - both currencies moved higher in one behind the other with the euro and following today's muscular moves, we sense that a correction is likely. United Kingdom trade statistics are planned for release tomorrow and a larger trade deficit is expected. While the trade numbers are important, risk appetite and the market's demand for euro and dollars will play a larger role in the direction of GBPUSD.
The more interesting fact is how the European Central Bank's decision affects the Fed's thinking. Ideally, Fed policy is completely independent of actions were taken in other parts of the world. In reality, however, the steps the European Central Bank takes affects the global markets which impact the United States economy. Aside from the more advance in the EUR, which doesn't directly strike the United States. the rest of the markets are relatively stable. More encouragement from the European Central Bank makes it easier for the FOMC to maintain a hawkish bias and remain committed to raising interest rates over this year. The United States labor market remains well built with claims falling to a fresh 5 month low.