NEW YORK, Dec (Shanghai: 600875.SS – news) 4 (Reuters) – The U.S. dollar was almost flat against the euro on Friday despite stronger-than-expected U.S. monthly jobs data, as markets continued to digest Thursday’s unexpectedly small stimulus from the European Central Bank.
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Draghi “could have gotten markets to excessively price in easing moves before intentionally coming out with easing measures falling shy of market expectations”, said Daisuke Karakama, chief market economist at Mizuho Bank.
The ECB cut its deposit rate deeper into negative territory – effectively charging banks more for holding money with it – and said it would continue to buy government bonds and other assets until March 2017, six months longer than previously planned. “This was problematic and he was criticized for this by several governors in private”.
“If the economy disappoints and the potency of central banks disappoint, it would be a cocktail that the market is not ready for”, said Didier St Georges, managing director of fund manager Carmignac.
Opponents worked to curtail proposals coming out of the ECB’s committees that prepared the decisions, ensuring that some of the more radical measures expected by market players never made it onto the table. Investors had been betting against the euro ahead of the announcement, expecting that more central bank stimulus would put pressure on the currency.
In overseas trading overnight, the dollar briefly plunged below ¥122.30, with market sentiment dampened by a dive in USA stock prices after the ECB’s monetary stimulus decided at its policy-setting meeting on Thursday fell short of market expectations.
“We are doing more because it works, not because it fails”, he said. “This time, he didn’t, and he disappointed the market quite a bit”, said Bob Michele, head of global fixed income at JPMorgan Asset Management.
“The ECB delivered what economists broadly expected, but less than the market expected”. The euro rapidly stiffened 3-4% against the dollar and yen.
Those expectations sharply pushed down the euro, and revived talk that it may soon hit parity with the dollar for the first time since 2002.
“This rattled United States markets after the European close last night and is once again taking a toll in early trade as the week´s final session gets underway”.
Draghi also announced Thursday cuts in euro area inflation expectations with the forecast for 2016 to reach 1.0 percent rather than 1.1 percent previously forecast. That followed a series of moves similarly aimed at boosting inflation, including cuts to its key interest rates and cheap, medium-term loans to banks. “Things have steadied in both cases”, one of the sources said.
The European Central Bank (or ECB) declared its key policy decisions after its meeting on December 3, 2015.
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“We have kept some powder dry”.
