Expectations were that the European Central Bank would extend its asset purchase programme beyond the current cut-off date of March 2017 and tweak the criteria to expand the pool of eligible assets.
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The euro hit a two-week high against the USA dollar late Thursday after the European Central Bank (ECB) agreed to keep it’s current stimulus (quantitative easing) program as is with no change.
“The (ECB). does not mind holding back with respect to (using) more aggressive measures, but the (bigger) question is how long they can afford to wait given that they are very late in the game of QE”, said ThinkMarkets analyst Naeem Aslam. He also said the bank’s low rates were being more effectively transmitted through the banks and credit markets, meaning more effective stimulus.
For the time being, the changes are not substantial to warrant a decision to act.
It was reported late on Thursday that Fed Governor Lael Brainard will make a speech on the United States economy on Monday, just before the blackout period for Fed officials ahead of the policy meeting later in the month comes into effect. The euro climbed to $1.1275 from $1.1253. “Compared with the June 2016 Eurosystem staff macroeconomic projections, the outlook for real GDP growth has been revised downwards slightly”, he said in a set of prepared remarks at the conference.
ANALYST’S TAKE: “Investors in Asia will focus on two developments from the overnight session – European Central Bank policy decision and the massive drawdown in U.S. crude stockpiles”, says Bernard Aw, market strategist at IG in Singapore.
EUROPE FACTOR: Weighing on market sentiments was the European Central Bank decision to leave key interest rates unchanged. The Governing Council confirmed that the monthly asset purchases of Euro 80billion are meant to run until the end of March 2017 or beyond, if necessary and in any case until a sustained adjustment in the path of inflation consistent with the ECB’s inflation aim is seen.
That followed comments by European Central Bank chief Mario Draghi on Thursday that the European Central Bank had asked internal committees to look at various options to ensure the smooth running of asset buys. Although key policy settings may remain unchanged today, Draghi may repeat his dovish mantra which could entice sellers to send the Euro lower. Lowering them would support arguments for more action.
The bank’s main lending rate, known as the refi rate, remains at 0%, while the rate paid on deposits left overnight at the ECB remains at minus 0.4%.
Draghi and the ECB are faced with inflation of only 0.2 percent annually, far below the bank’s target of just under 2 percent.
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The kiwi had gained nearly 2 per cent in the past week on a trade-weighted basis as relatively robust economic data and gains in prices of dairy products and other commodities lifted sentiment for the currency in the face of weak data in the U.S. and elsewhere.
