ECB lowers Deposit Rate by expected 10bps, to reintroduce QE from 01 Nov

Published date: 12/09/2019

The ECB has delivered a cut in the Deposit Rate of 10bps, which was the consensus expectation.  Some anticipated a possible 20bps in a bid to try and get ahead of the weakness in the Eurozone, but the governing council is taking the steady approach and this is likely to have been insisted upon by the more hawkish members of the ECB.   The main refinancing rate is unchanged at 0.00%, with the Marginal Lending Facility remains at 0.25%.  

However, the ECB has also announced that it will reintroduce asset purchases of Eur20bln a month starting from the 1st of November and that it will continue to buy bonds for as long as is needed.   It will stop purchases shortly before it sees fit to begin raising rates.  The governing council is also to introduce a 2 tier system for negative rates, and the details will follow soon.  

The initial reaction was a EUR/USD snap higher, responding to the lesser of the expected cut options to the Deposit Rate.  Spot rallied to around 1.1060 or so but was swiftly pounced up as the news of fresh QE filtered through the market.   As as result, we were seen back in the low 1.1000's again, but we have now extended down through the figure, in what looks to be a fresh test ahead on the lows we saw at the start of the month.  Recall, we hit lows around 1.0925/27 at the time.  

The crosses are also lower, with EUR/GBP slammed back into the low 0.8900's, with support seen below here, though this will continue to be challenged should EUR/USD maintain its path lower.  EUR/CHF is also looking to push down to new lows on the week, but along with EUR/JPY, has some way to go to challenge the cycle lows - seen last week.


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