The European Central Bank cut all three interest rates at today’s policy meeting, as widely expected. The main refinancing rate was cut to 0.15% from 0.25%, its deposit facility rate fell to -0.10% from zero, while its marginal lending facility declined to 0.40% from 0.75%.
The euro plunged as a reaction to the rate cut retreating heavily to retest the 1.35 level, prompting another round of sharp sell offs. Neverthless, European equity markets rallied on the news. The DAX, CAC and IBEX indices surged between 0.8% and 1.6%.
ECB’s President Mario Draghi said the Bank would take further action to support the Eurozone’s economy if necessary. He specifically reported “If required, we will act swiftly with further monetary policy easing. The Governing Council is unanimous in its commitment to using also unconventional instruments within its mandate should it become necessary to further address risks of too prolonged a period of low inflation”, according to Thomson Reuters.
We expect a further correction lower in the European currency as the European Central Bank tries to tackle deflation concerns in the short-term. Support holds near February’s low level at 1.347.