The ECB’s latest stimulus package on Thursday, which included a small deposit rate cut and an extension of its asset purchase program, disappointed investors who had hoped for more radical action, and sent European markets into a tailspin.
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The euro shed 0.75 percent against the dollar to trade at $1.0862 after shooting 3.1 percent higher on Thursday, its biggest one-day gain since March 2009.
European shares were poised for further declines, with financial spreadbetters expecting Britain’s FTSE 100 to fall 0.6 per cent, and France’s CAC40 and Germany’s DAX to open down 0.8 per cent.
The euro held most of its gains Friday as the European Central Bank’s increased economic stimulus fell well short of market expectations.
Investors had expected a bigger cut to the deposit rate and an enhancement in the monthly asset purchases of Euro 60 billion to as much as Euro 80 billion.
“Markets will look for alternative dollar bullish trades, pushing euro/crosses and euro trade-weighted index higher”.
“The ECB overshadowed today’s data point”, said Chris Gaffney, president of EverBank World Markets in St. Louis, in reference to the U.S.jobs data. But the news had little impact on the currency market, according to several market strategists.
That took the dollar’s index against a basket of six major currencies down to a one-month low of 97.591 overnight, before bouncing back to 97.990 on Friday. A revision on Thursday of the ECB’s own forecasts to 1 percent in 2016 and 1.6 percent in 2017 baffled investors even more. The Australian dollar climbed towards its October peak of 0.7382, while the New Zealand currency briefly popped above 67 US cents for the first time in a month.
Despite such efforts, Europe’s economy continued to remain sluggish, with the inflation rate standing at a mere 0.1 percent in November, falling far below ECB’s target of nearly 2 percent. Yellen also said the US economy needs to add fewer than 100,000 jobs a month to cover new entrants to the workforce, perhaps setting an implicit floor for jobs growth that policymakers want to see. Traders are keeping an eye on Friday’s OPEC meeting, though expectations were that the cartel would not cut its production levels, despite low prices.
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The Indian rupee briefly slumped to a two-year low past 67 against the dollar, prompting speculation among traders that the Reserve Bank of India intervened in the market by having state-run banks sell the greenback on its behalf.
