Release Explanation: This is the Interbank overnight lending rate. It sets the tone for mortgages, commercial loans, and all economic lending criteria. An increase in Interest Rate will have the effect of slowing economic growth. A decrease in Interest Rate is used by a Central Bank to stimulate economic.
Trade Desk Thoughts: The ECB reduced the Minimum Bid Rate to 1.50%, the lowest rate on record. This comes, after the ECB maintained the key interest rate at 2.00% at the last meeting
The market will now shift its focus to Mr. Trichet’s press conference, which starts approximately 45 minutes after the interest rate decision. It is expected that the President of the ECB will assess the downside risk, while saying that the bank may take steps that are more cautious in the future. Currently, the Euro-zone economy is in a recession, with analysts estimating a recovery might be likely in the second part of 2009, or beyond. Previously, ECB members have appeared reluctant to reduce the overnight rate too much, as it might spur inter-banking lending. Today, the ECB will update the staff projections for 2009 and 2010.
Forex Technical Reaction: The euro rose 20 pips during the news release. During the overnight market, the euro was sold at a sustained pace, falling 100 pips