08, July 2013

EUR/USD (a 4-hour chart)

EUR/USD (a 4-hour chart)

The Governing Council the ECB decided at the last meeting that the interest rate on the main refinancing operations, as well as on lombard loans and the deposit facility will remain unchanged at 0.50%, 1.00% and 0.00%, respectively.

Remaining the rates at the same level for an extended period of time the ECB took an unprecedented step. Draghi refused to define exact timeframe, but noted that ‘extended’ does not mean just six or twelve months.

It is clear that both - Draghi and Carney have been motivated in recent weeks. With a decrease in the number of interventions by the Fed the other two forces seemed to play an important role in the past week:
1) The sale of foreign bonds by Japanese investors, and that is something that the Finance Ministry had previously indicated
2) Liquidity in China, continuously fading, but possibly, also indicating the end of ‘easy money’.

Forced by circumstances, Draghi did what he had to do - he left the possibility of negative interest rates on deposits open. He also confirmed that the ECB expects the region's economy to recover later this year and in 2014, pointing out that this assumption is proven by relevant data.

All in all, it was one of the more successful press conferences of Draghi. Under the yoke of circumstances, the ECB is forced to innovation, and it borrows FRC experience to influence the markets.