The European Central Bank stepped up efforts Thursday to kickstart chronically low inflation in the euro area, cutting a key interest rate and extending its controversial asset purchase program, but financial markets reacted with disappointment.
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That led the euro to shoot 3.1 percent higher against the dollar to mark its biggest one-day percentage gain in almost seven years and its highest level in a month, at $1.0981.
But the main bank deposit rate has been cut further into negative territory, from -0.2 to -0.3 percent, charging banks more for parking cash with the central bank in a bid to boost lending.
Asian markets tumbled Friday, in line with a global sell-off, while the euro held most of its earlier gains after the European Central Bank’s revised economic stimulus measures came up short.
Its rate cut of 0.10 percentage point, to -0.30%, was smaller than a 0.15-0.20 percentage point cut many traders expected.
While her counterpart at the European Central Bank (ECB), Mario Draghi, cut the deposit rate to a record low of -0.3% and cleared the way for further quantitative easing until at least March 2017.
Euro is now trading at 1.088 against Dollar.
“The domestic stock market may have fluctuated right after the ECB’s decision but will soon return its attention to a more critical issue, which is the imminent USA rate hike”, said Park Seok-hyun, researcher at Eugene Investment & Securities.
Federal Reserve Chair Janet Yellen, speaking before Congress’ Joint Economic Committee on Thursday, had said the United States may be “close to the point at which we should be raising” rates.
US nonfarm payrolls increased 211,000 last month, the Labor Department said on Friday.
Dealers are now awaiting the release of key U.S. jobs data later in the day, although analysts say the report would need to be monstrously bad to prevent a Fed rate rise.
That would be a fairly low bar given that economists’ median forecast was 200,000, when even the most conservative forecast in a Reuters poll of more than 100 economists was 150,000.
“But he has also hobbled his ability to move markets with rhetoric alone, since this recent experience has been much more talk than material action”. The yield on the 10-year U.S. Treasury note, which closed at 2.18% on Tuesday, rose to close to over 2.32% Wednesday.
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Crude oil prices extended Thursday’s 3 per cent rise as OPEC leaders gathered in Vienna. Brent crude, which is used to set prices for global oils, climbed $1.35, or 3.2 percent, to $43.84 a barrel in London. It last stood at 98.326, up 0.7 percent on the day.
