FX Roundup: Euro sees modest uptick as market adjusts to ECB decision

The euro registered modest gains on Thursday after the European Central Bank slashed its main interest rate by 5 basis points to 0.00% and increased quantitative easing by €20bn.

The monthly purchases under the asset purchase programme will be expanded to €80bn starting in April. The market had priced in a €10bn increase, and the euro fell 1.37% against the dollar to $1.0846 over the next hour of trading following the move, before recovering later on in the European session.

At 1459 GMT, the euro was up 0.37% versus the greenback changing hands at $1.1040. The ECB also cut its deposit facility rate by 10 basis points to -0.40%, but the move was widely expected. Another surprise was that investment grade bonds issued by non-bank corporations will be included in the list of assets for regular purchases.

A new series of four targeted longer-term refinancing operations (TLTRO II), each with a maturity of four years, will be launched, starting in June 2016. Borrowing conditions in these operations can be as low as the interest rate on the deposit facility.

Berenberg analyst Holger Schmieding said, “The comprehensive package exceeds expectations by enough to have a positive confidence impact not just on financial markets but also on business confidence in the Eurozone.

“In the absence of any new shock such as Brexit, the package will help to get the Eurozone back to trend growth of annualised rates around 1.6% by mid-2016."

Away from the European common currency, the dollar was up 0.64% against the yen, changing hands at JPY114.08. The pound was broadly flat versus the greenback, posting a nominal decline of 0.02%, changing hands at $1.4214.

Commodity linked currencies continued to stutter with the greenback registering a 0.35% rise versus the Canadian dollar changing hands at CAD$1.3294.

The Australian dollar fell 0.53% against its US counterpart exchanging at US$0.7446. Finally, the New Zealand dollar was broadly flat versus the greenback changing at US$0.6652, after registering declines in wake of the Reserve Bank of New Zealand’s decision to cut its benchmark interest rate by 25 basis points to a record low of 2.25%; the fifth such move since June 2015.

RBNZ governor Graeme Wheeler attributed the move to the central bank’s concern over global growth and weaker demand from China – a key trading partner and exporting destination for New Zealand’s dairy products.

He also hinted at further interest rates cuts, expressing concerns about “weaker growth in China and other emerging markets, and slower growth in Europe."