After cutting interest rates less than expected at the last meeting, the European Central Bank’s leading members appear to be giving a clear signal over what the bank should do next.
In the latest interview, the governor of the Austrian central bank Ewald Nowotny said that the key interest rate should not go below the 1% level. This statement backs what other key ECB members have said over the past few weeks. Among them, the Vice-President of the European Central Bank said that the key interest rate could move somewhat lower, but in a “measured way”. Additionally, Axel Weber, which leads the Bundesbank, said that 1% is his personal bottom line.
Putting the pieces together, it appears that the ECB does not want to cut below 1%, even though the bank adopted a number of quantitative policy measures. “Despite having a much higher interest rate than the Fed, the money market rates in Europe are lower then in the U.S., and this gives the ECB more space to maneuver.” TheLFB-Forex.com Trade Team added.
“If the ECB decides not go any lower than 1% and MR. Trichet or any other of the voting members makes this official, the euro may find very strong support.” TheLFB-Forex.com Trade Team added. “The single currency might strengthen not only against the dollar, but against a whole range of currencies, especially against the pound” they said. “However, this would also have a side-effect, since the euro will gain ground against the Eastern European currencies, which are ready to sink in a pool of foreign denominated debt.”
TheLFB-Forex.com Trade Team notes “Since every other major central bank reached the lower limit of the monetary policy, the ECB policy measures are more important than ever for the euro’s valuation.” Keep an eye on what the ECB members are saying, you never know when the euro might take off”.