The euro jumped by two cents, (http://www.marketwatch.com/story/dollar-moves-up-as-investors-ready-for-ecb-meeting-2015-12-03) briefly hitting its highest level in four weeks. That would send the US dollar up and the euro down.
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T he European Central Bank (ECB) on Thursday acted against excessively low inflation, cutting its key lending rate to a fresh historic low and expanding its bond-buying programme.
“There was a build up of expectations based on Draghi’s strong track record of overcoming political opposition”, said Lena Komileva of consultancy G+ Economics. Earlier in the session, it had threatened to drop below $1.05.
On Thursday, the bank cut a key interest rate by less than expected.
The bank cut its forecast for inflation in 2016 to 1.0 percent from 1.1 percent in its last outlook in September.
Technology and banking stocks drove Australia’s S&P/ASX 200 Index down 1.7 percent. The central bank considers employment and inflation data as it makes monetary policy decisions.
Low inflation damages the economy in part by making it costlier for borrowers to repay their debts.
Germany’s central bank chief Jens Weidmann, who didn’t think economic conditions warranted more stimulus, made his resistance to the fresh round of stimulus public hours after the decision.
In theory, that increases the amount of credit available to businesses. Hong Kong’s Hang Seng Index retreated 1.1 percent, led by a slump by Tencent Holdings Ltd., and the Shanghai Composite Index fell for the first time in five days. The ECB’s target is below, but close to, 2%.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. Disappointed investors had anticipated a 25-percent increase in monthly asset buys, with some even pricing in a bolder deposit rate cut than the move to -0.3 percent from -0.2 percent. The Korean won rose 0.6 percent. Sales were expected to grow 0.2 percent.
Further volatility is likely for the Rupee, however, as pundits speculate on the odds of the Federal Open Market Committee (FOMC) raising interest rates before the end of the year, a move that would weigh heavily on emerging market currencies.
“Everyone was expecting Draghi to be the white knight for Europe once again and he hasn’t really shown up”, said Aberdeen Asset Management Investment Manager Patrick O’Donnell.
Treasury prices fell, pushing the yield on the 10-year note up to 2.299 per cent from 2.178 per cent on Wednesday.
However, Craig Erlam, senior market analyst at OANDA, argues the opposite is the case. But it has been negative since June 2014, meaning banks effectively pay the ECB to hold their funds.
At his postmeeting news conference, Mr. Draghi said the gap between market expectations and what the central bank had delivered wasn’t due to poor communication. We are thinking here above all of another cut in the deposit rate of 0.1 percentage points to -0.4%, probably at the March meeting.
The market reaction was decisive, with investors sending equities plunging and the euro soaring, feeling burned after expecting a more aggressive stimulus program. Shares in Rio Tinto and BHP Billiton, two of Australia’s biggest miners, were down 2.6 and 1.5 percent. Is it a sign of economic recovery, or complacency?
The TSX financial sector dropped 1.2 per cent.
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Largely the Lira has been shored up by the news that the domestic Manufacturing PMI has edged back into expansion territory, having climbed from 49.5 to 50.9.
