The Euro initially faltered in the wake of the European Central Bank’s policy announcement but has since rallied back to its pre-meeting level.
EUR/USD dropped to as low as 1.094 after the ECB announced a 10bp cut to its deposit rate (to -0.50%) and a resumption of its quantitative program as of 1 November to the tune of EUR 20bn/month. It also said that rates would not rise until its QE program was paused and that it would introduce a tiering for bank deposit rates, in order to compensate banks for negative rates. This was broadly in line with expectations although some analysts had expected the ECB to cut rates more aggressively (by 20bp) and announce a more ambitious asset-purchase program.
But EUR/USD quickly bounced back to 1.103 and has currently edged higher to around 1.105. This brisk two-way price action in the Euro suggests that markets may still be figuring out whether the ECB’s monetary policy easing measures will help support Eurozone growth and inflation and ultimately benefit the single currency.
