EUR: Was that a rate hike or a rate cut? – BTMU

By FXStreet FXStreet (Guatemala) – Analysts at Bank of Tokyo Mitsubishi explained that you’d be forgiven for asking this question given the financial market reaction to the 10bp cut in the deposit rate to -0.30% and the extension of the ECB QE program of six months, taking the total purchase amount from EUR 1.14trn to EUR 1.5trn.

Key Quotes:

The German 2-year yield jumped 13bps, the 10-year yield increased 20bps and the Euro Stoxx index plunged 3.6%. And on an intra-day high-low basis, the EUR/USD rate surged 4.3%. In percentage terms that’s the largest one day gain this side of the Great Financial Crisis – so surpassing all market reactions to bailout deals and other policy responses during the debt crisis in the euro-zone.

We obviously acknowledge that the euro short position was larger than we anticipated but even taking that into account, the euro gain looks over done. EUR/USD was trading around 1.1300 when Draghi first hinted at a deposit rate cut at the October meeting, but the drop in EUR/USD since then to close to 1.0500 was not only about the ECB. The Fed also moved closer to a rate hike over this period – since the ECB meeting in October, the …read more

Source:: FX Street