At his traditional post-meeting news conference, ECB President Mario Draghi announced that the bank would also beef up its controversial bond purchase program, known as QE or quantitative easing.
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Traders piled into the euro after the latest European Central Bank move – extending the timetable but not the scale of its €1.1 trillion money-printing programme – fell well short of market hopes.
Investors will look to US data today for further indications of the health of the world’s largest economy and the trajectory of interest rates.
Most purchases are made in Germany because the bond buying is weighted to each country’s contribution to the ECB’s capital. The Standard & Poor’s 500 index fell 33 points, or 1.6 per cent, to 2,046 and the Nasdaq composite fell 102 points, or 2 per cent, to 5,021.
While analysts said the data was strong enough to confirm that the Federal Reserve would hike USA interest rates this month for the first time in almost a decade, they also said it failed to fuel a dollar rally against the euro given the ECB’s decision.
At the ECB’s last monetary policy meeting of the year, the governing council decided that the key deposit rate would be lowered to minus 0.3 percent. So a lot of investors overbought bonds on expectations that Draghi would over-deliver.
Peter O’Flanagan, head of trading at broker Clear Treasury, said: “We discussed the European Central Bank loading their bazooka yesterday but the reality of the release was more like a water pistol soaking market appetite”.
Asian stock markets were all in the red, with Tokyo ending down 2.2 percent, Shanghai shedding 1.7 percent and Sydney 1.5 percent lower. Investors had been betting against the euro ahead of the announcement, expecting that more central bank stimulus would put pressure on the currency. 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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METALS: Gold rose $7.40, or 0.7 per cent, to $1,061.20 an ounce, silver rose seven cents to $14.08 an ounce and copper rose three cents to $2.06 a pound.
