ECB cuts its deposit rates and EUR/USD made a u-turn move following the press conference. All the focuses were put on Thursday at the monetary policy meeting of the ECB (European Central Bank), who cut interest rates by one-tenth, from -0.4% to -0.5%, and announced new measures to mitigate the weak economic prospects of the region. The ECB left the door open to make rate cuts at its next meetings. In addition, they announced that they would launch a new asset purchase program (QE) that will last one year and will have a minimum amount of 30,000 million euros per month.
During the meeting and the appearance of Mario Draghi, whose meeting was the last before leaving office as president of the central bank, the EUR/USD pair made a u-turn move after plummeting to test fresh lows around 1.0926. On Thursday, the common currency did a bullish consolidation, turning positive on the day, despite the initial decline, which could also be seen as a response from the traders to the more dovish-than-expected stance by Draghi during his usual press conference.
And it was in this appearance that the outgoing president of the ECB said that the risks for the European economy continue to increase, especially in the manufacturing sector, and emphasized the need to maintain a politically “highly accommodative” for a considerable period of time.
For 2019, the European Central Bank cut its CPI estimates from 1.3% to 1.2% and 4 tenths by 2020, lowering them from 1.4% to 1.0%.
Draghi called on the countries of the European block to implement reforms that help mitigate the effects of the economic slowdown and urged governments not to only comply with ECB’s fiscal policies.
Although he did not directly addressed the trade war, “Super Mario” said in his speech that this kind of geopolitical issues certainly creates uncertainty in the financial markets.
Regarding the reference interest rates, the president of the ECB also said that they will remain unchanged for as long as necessary, in order to maintain “favorable liquidity conditions for the economy and support the growth of the Eurozone.”
Regarding the debt purchase program, it was announced that the QE will end shortly before interest rates begin to rise, although an estimated date has not yet been given.
Sources familiar with the situation, cited by Reuters, said the motion on the QE was rejected by Weidmann, Benoit Couere and Francois Villeroy de Galhau, which signals that Draghi faced a difficult outlook while negotiating this program.
Current EUR/USD price’s dynamics
So far, the pair has been hovering above the 1.1000 handle across the board, which represents almost 50 pips of gains on an intraday basis. All the eyes now are put on the upcoming FOMC meeting and the latest development on the trade war between USA and China, whose waters are started to calm down, as both countries have been showing positive signs. The meeting will take place over the next weeks in Washington, but an exact date hasn’t been announced so far.