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London - The euro climbed the most in seven weeks against the dollar after the European Central Bank (ECB) cut the deposit rate to minus 0.3%, disappointing some market predictions of a deeper reduction.
Attention now turns to ECB President Mario Draghi’s press conference at 15:30, and to whether he’ll unveil an anticipated boost to the bank’s quantitative-easing program.
The 19-nation shared currency gained against most of its 16 major counterparts after the 10 basis-point cut to the deposit rate, from minus 0.2%.
Such a move had already been priced into the market and some strategists at banks including ABN Amro AV, Commerzbank AG and DZ Bank AG were forecasting a 20 basis-point reduction.
“10 basis points is not enough,” said Alvin T. Tan, a London-based strategist at Societe Generale SA. “The market needed at least 20 basis points to keep euro-dollar under pressure but maybe there will be a surprise on the asset purchases side. If that is only €10bn more per month, that would be disappointing.”
Tan was talking about the possibility of an increase to the €1.1trn bond-buying program, which is currently due to expire next September.
Draghi’s challenge
Since Draghi said in October that officials would act if necessary to improve the region’s inflation and growth outlook, traders have been betting on additional stimulus measures which could include changes to QE.
The euro rose 0.7% to $1.0694 as of 15:04, the most since October 14. It earlier touched $1.0524, the lowest since April. The shared currency strengthened 0.7% to ¥131.72.
The ECB president prepared markets for more stimulus in October and reinforced his pledge in a speech on November 20 when he said officials “will do what we must to raise inflation as quickly as possible.” Annual inflation in the euro area held near zero in November, against an ECB target of just under 2%.
