Euro Update – by Michela Jaccarini
January 22, 2016As predicted, the ECB yesterday kept the interest rate on the main refinancing operations unchanged at 0.05%. The interest rates on the marginal lending facility and the deposit facility also remain unchanged at 0.3% and -0.3% respectively. Mario Draghi expects the banks’ interest rates to remain at this level or lower for an “extended period”. He stated that the bank’s asset purchases are proceeding smoothly and that its current monetary policy measures are working.
As a result of the recent fall in oil prices, a lack of inflation and continued pressure on prices could give Draghi more reason to ease further in the near future. Having said that, in comparison to other area data, the Euro economic data for 2016 so far has been steady and promising. However, downside risks have increased and heightened uncertainty about volatility and geopolitical risk.
EURUSD reacted to Draghi’s meeting by dropping to a 2-week low of $1.07762 and Europe Stoxx 600 is up 2%. It has since recovered and is currently trading at 1.0847 but all attention will shift to the next ECB Meeting held on the 10th March. Should the ECB announce further quantitative easing, EURUSD price will weaken and could possibly chase December 2015 lows.
