In what likely caught the markets a bit offguard, considering it's the first ECB rate decision chaired by the new president's, we saw the ECB lower interest rates by 25 basis points to 1.25%.
From Bloomberg: ECB officials, meeting under the presidency of Mario Draghi for the first time, lowered the benchmark interest rate by 25 basis points to 1.25 percent, wrong-footing 51 of 55 economists in a Bloomberg News survey. Four predicted a quarter-point move and two expected a half-point reduction.
The move shows that the ECB has registered that the macro situation has deteriorated in the euro zone economy and that the interest-rate hikes from earlier in the year are now restrictive to growth. It also shows that the incoming President - Mario Draghi - did not feel the need to shore up his inflation fighting bona fides by keeping interest rates steady for another month while transmitting a more dovish intent for future meetings. Instead he, along with the rest of the Governing Council, decided to move today.
See our preview for the ECB rate decision - Preview: ECB Rate Decision - 4 Key Questions to Consider
We eagerly await the upcoming press conference from president Draghi, in which he will further explain the move as well as the outlook from the ECB on both growth and inflation.
Impact on Markets
The move helps risk appetite as the easing of monetary policy by the European Central Bank should mean more support for an economy that has struggled of late. The S&P 500 futures responded by climbing to the 1250 area, and higher-yielding commodity currencies extended their rally from overnight against the US dollar.
The EUR/USD meanwhile fell following the news, spiking down to 1.3722, as the euro was weaker against the dollar and was broadly pressured against higher yielders. With a general risk-on response to the ECB decision, the commodity currencies saw very strong gains against the EUR.
- Nick Nasad, Chief Market Analyst
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In the moments following the rate cut, the Euro slid across the board. As the lower interest gives theEuro a bearish bias, it gave the commodity currencies a boost because it is suppose to help equity markets and risk sentiment.
The market is whipping back as you can see in the 5-min chart, but EUR's loss against the AUD and CAD for example are well kept:
The EUR/USD fell from 1.3834, near yesterday's high back toward 1.3720 (200SMA in 5 min chart) before pulling back toward 1.3790.
EUR/GBP dipped from 0.8630 to 0.8671 before a pullback to 0.86.
EUR/JPY fell from 107.90 to 107.00 and pufore a pullback to 107.50.
EUR/CHF fell from 1.2160 to 1.2135 before a rebound to break the pre-ECB high making a new high at 1.2167.
EUR/AUD was already declining, and accelerated lower from 1.3315 to 1.31171 before stalling.
EUR/CAD was hovering around the 200SMA in the 5-min chart. Then it dipped sharply from 1.3950 to 1.3825 before a small pullback to 1.3885.