Dovish Draghi Hints On Escalated QE Measures

Currency markets reacted heavily to comments by ECB President Mario Draghi on Thursday that the European Central Bank (ECB) may proceed with further Quantitative Easing (QE) measures if necessary. The EUR/USD took a sharp nosedive while the European stock markets remained supported.

The European stock markets reacted positively at the ECB President’s hints of a possible QE programme increase. On Thursday the FTSE 100 increased by 0.7%, while the German DAX 30 and the French CAC 40 jumped by 3% and 2.8% respectively. The EUR/USD fell dramatically as on the same day it posted losses by 2.3% and found support at the 1.10-level. On a weekly basis, the world’s most popular currency pair lost an overall 3.1% and ended trading at 1.10169.

The ECB initiated its monetary stimulus measures by purchasing €60 million worth of bonds on a monthly level, and will consider increasing its current €1.1 trillion QE stimulus programme during its next meeting in December as part of its continuing efforts to rejuvenate the Eurozone’s inflation level upwards. While this is only a possibility, markets revealed their worries that the ECB might proceed with intensifying their monetary policy measures during its next meeting by reacting immediately with dramatic sell-offs of the euro given that the latest Consumer Price Index (CPI) data for September showed a 0.1% decrease. The bank left interest rates unchanged at 0.05%.

Even though his comments for a possible escalation of the QE programme, Mr Draghi sounded satisfied with the current state of the Eurozone’s economy as he stated that the asset purchase program is running smoothly and is already having a positive result. However, a large part of the investment community predicted that the ECB would stick with the current level of interest rates set more than a year ago. The current overnight deposits rate is -0.2% which implies that banking institutions must spend money to keep funds in their member state’s central bank, and the marginal lending facility is at 0.3%.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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