Summary:
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ECB keep all rates unchanged as widely expected
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Draghi strikes dovish notes, but stops short of any fireworks
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EURUSD dips to 1.13 before bouncing. Lowest level in 5 weeks
The first ECB meeting of the year, and also the first since the bank ended their asset purchase programme, has seen a seesaw in the single currency, which initially fell back before recovering to trade higher once Draghi ended his speech. As was widely expected, the bank chose to keep all three of its main rates unchanged as follows:
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Main refinancing rate: 0.00%
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Marginal lending facility: 0.25%
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Deposit facility: -0.40%
At the same time as announcing the rates the latest policy statement from the ECB was also released, in what was an almost carbon copy of the previous statement. The only real difference was the date in the heading and also the omission of the line relating to the end of the asset purchase programme.
The ECB was little changed from the previous month and as such provided little new information for traders to go off. Source: ECB.europa.eu
As is often the case with ECB decisions, the main market moves came during the press conference with Draghi explaining that the meeting was devoted to analysing the slowdown. Initially the markets seem to take the president as erring on the dovish side with the line that “risks to the outlook had moved to the downside” the most noteworthy. Further selected comments were as follows:
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Underlying inflation has been muted
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We were unanimous in assessing the factors that caused the slowdown, namely the increasing general uncertainty
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If risks persists, momentum will be weak for long
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Can’t exclude a more benign economic outcome
To summarise, the overall feeling from the event was that the ECB are now adopting a slightly more dovish stance than they were at their last meeting, but the shift doesn’t appear to be that great and is not as apparent as the one seen across the Atlantic in the US. This can be seen by the move in the money markets, with now price less than a 40% chance of an ECB rate hike in 2019 compared to 45% earlier.
The EURUSD initially dropped to its lowest level since mid-December not long after Draghi began speaking but buyers stepped in to defend the 1.13 handle and there’s been a strong bounce since. This could now be seen as important support. Source: xStation
