ECB increases QE and Cuts Rates

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ECB Draghi Press Conference

Image via ECB European Central Bank / Flickr

Today’s Economic events

  • Japan PPI y/y -3.40% vs. -3.40%
  • Australia MI inflation expectations 3.40% vs. 3.60% previously
  • China CPI y/y 2.30% vs. 1.80%; PPI y/y -4.90% vs. -4.90%
  • Germany trade balance 18.9bn vs. 19.2bn
  • Italy quarterly unemployment rate 11.50% vs. 11.50%
  • ECB cuts refi rates to 0% from 0.05%
  • ECB cuts deposit rate to -0.40% from -0.30%
  • ECB cuts marginal lending rates to 0.25% from 0.30%
  • ECB increases QE from €60 billion to €80 billion
  • US weekly jobless claims 259k vs. 275k
  • Canada HPI m/m 0.10% vs. 0.20%

Coming up

  • BoC Governor Poloz speech

Central bank meetings were the focus as back to back BoC and RBNZ meetings kept the markets volatile. While the Bank of Canada left rates steady without any references to the Canadian Dollar’s exchange rates, the RBNZ surprised with a 25bps rate cut, bringing the OCR rate from 2.50% to 2.0%. RBNZ’s statement was strongly dovish noting further rate cuts would be warranted. The move took the Kiwi by surprise as NZDUSD fell sharply on the news. The Kiwi was briefly trading near a five-day low in early Asian session today near $0.66 but managed to push higher up 0.11% for the day.

The Australian dollar remained muted as the AUDUSD is down -0.16% for the day with prices trading flat for the most part. The Yen was weaker since yesterday’s trading as USDJPY is now up 0.90% for the day, trading at 114.3, following a sharp rally after touching lows of 112.35 in yesterday’s session. The weaker Yen saw the Asian markets closing higher with the Nikkei225 gaining 1.20% for the day. China’s Shanghai Composite was, however, weaker down -2.03%. Data from China today saw the inflation numbers rebounding strongly, rising 2.30% to the expected 1.80% increase. PPI was also moderate, falling -4.90% as expected. The better than expected data continued to help the Yen ease back across the board.

In Europe, the ECB’s meeting was the focus of the day as the EURUSD started moving sideways ahead of the ECB’s monetary policy statement. Broadly beating expectations, the ECB cuts the main interest rates to 0.0% from 0.05% while the deposit rates were cut by 10bps to -0.40% and a modest 5bps cut to the marginal lending rates. Besides the rate cut, the ECB also increased its QE purchases by an additional €20 billion, scaling up the bond purchases to €80 billion and including corporate bonds as well. The Euro fell on the news, down -1.31% for the day but was seen holding above the 1.085 – 1.0825 support level. ECB president Mario Draghi is currently holding the press conference.

[Tweet “ECB cuts the main interest rates to 0.0% from 0.05%; the deposit rates were cut by 10bps to -0.40%”]

The British Pound was muted today given that all focus was on the ECB. GBPUSD continued to gradually drift lower, down -0.40% for the day, trading at $1.416 at the time of writing. European equity markets are pushing higher after the new measured announced by the ECB. The German DAX is up 2.30% while the London FTSE100 is up 0.61% at the time of writing.

The NY trading session opened with the weekly jobless claims coming out better than expected. Initial jobless claims rose 259k less than the expected 275k. Other data included the Canadian housing price index which grew 0.10%, less than the expected 0.20% increase. USDCAD which fell sharply yesterday is looking to rebound as prices are up 0.37% for the day, trading at 1.329. BoC Governor Poloz is due to speak later this evening. US futures markets are looking to a higher open as the Dow Jones futures gained 0.89% and the S&P500 up 0.96% ahead of the opening bell.

Commodity markets are mixed with Gold prices down -0.13% for the day. Gold fell to session lows of $1240 before posting a rebound, currently trading at $1250 an ounce. Crude Oil prices are up a modest 0.03% for the day, as prices remain flat near the $38 a barrel level.

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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