The ECB extended its monthly €60billion asset purchase programme – quantitative easing – by six months to March 2017 but did not increase the amount pumped into the economy each month. It had fallen to a 7-1/2 month low of $1.0523 on Thursday before jumping to as high as $1.0981 after the ECB’s measures were announced.
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The euro rose nearly 3 per cent against the dollar to $1.084 in the wake of the news.
Petroleum-linked equities fell, including Dow members ExxonMobil and Chevron, which lost 1.4 percent and 1.6 percent, respectively.
The 2017 revision takes the bank’s projection farther from its goal of just under 2 percent and helps to justify the bank’s decision Thursday to extend more economic stimulus aimed at raising weak inflation of only 0.1 percent annually.
– expanded the kinds of bonds it would buy in its stimulus program, to include those issued by regional authorities. An hour later, Draghi also said its bond-buying program will be extended in an effort to jump-start growth and fight dangerously low inflation.
“I don’t think our communication was wrong”, he said.
Michelle Meyer, deputy head of US economics at Bank of America Merrill Lynch said while there’s a lot that could move the markets through the end of this week, US Fed chair Janet Yellen will remain focused on what’s going on in Europe.
Asian stocks slumped early Friday, following US and European markets, after the European Central Bank did less than some investors hoped to boost the region’s economy.
For those thinking more broadly, the euro zone five-year, five-year breakeven forward rate – an inflation expectations gauge often cited by the European Central Bank – fell to 1.75 percent after the meeting, having been around 1.81 percent beforehand.
Germany’s DAX, which has many exporters, fell 3.6 per cent, suffering from a rally in the euro.
The ECB cut the overnight deposit rate by 10 basis points, from -0.2 per cent to -0.3 per cent. With new projections from ECB staff indicating the economy is growing, albeit gradually, Draghi may have been persuaded to wait to see if the region’s low inflation rate – the bank’s chief concern – doesn’t turn up decisively next year.
The euro jumped, climbing to its highest level against the greenback in a month.
This year, emerging markets currency weakness is the single largest contributor to negative total dollar returns, accounting for over a third of the total. Crude oil prices rose about 3 percent on the eve of the meeting, as traders, although expecting no cuts in oil production, hedged their positions.
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Even if oil prices account for part of the problem, core figures, which strip out energy prices, are running at half of the target, an indication that once the one-off effect of the crude price fall passes through, inflation will not rebound, they argue. That’s the second straight 0.1 percent decline and suggests that a rise in consumer demand earlier in the year may have run its course. If the European Central Bank had announced more stimulus, it would have had the effect of putting downward pressure on interest rates.
