EUR/USD breaks below 1.8000
The Euro stumbled before New York’s open on announcements from European Central Bank's Governing Council. Market forecasters had anticipated; no change in key interest rates, and future reductions in monetary stimulus to the Euro-Zone. The news sent the EUR/USD pair below the 1.8000 level to support at the 1.74/1.7500 level.
EUR/USD could not hold support at 1.7500
ECB Announces Asset Purchase Program Taper and No Rate Changes
The ECB will cut their bond purchases in half, from $60 to $30 billion per month, beginning in January 2018. They will continue their program of reduced asset purchases until September 2018, or further if needed.
Economists have suggested that The ECB will lower its allocation to government bonds in its asset purchases. This would suggest that both equities and corporate bonds would become a higher percentage of assets purchased. In President Draghi’s press conference, he discusses The Bank’s interest in equity purchases, however stating that “we are not there yet”. President Draghi expressed The Bank’s desire to gradually reduce its asset purchases, rather than remove the stimulus immediately.
The Bank announced they will continue to reinvest their maturing securities for an extended period of time beyond their net asset purchases. Rolling their maturing securities will provide liquidity, continue with an appropriate monetary policy and will be extend for as long as needed. The Bank also stated that if there was any deterioration to financial conditions, they are ready to extend or increase their asset purchase program past September 2018 and as long as needed.
Bank interest rates remain unchanged: refinancing rate of 0%, deposit rate of -0.4%, and a marginal lending facility rate of 0.25%. The ECB will continue to keep interest rates low during their asset purchase reductions, and signaled they have the flexibility to keep them lower for an extended period of time past the taper.
The economic recovery in The Euro-Zone will be watched closely by Bank officials as they make appropriate monetary policies in 2018. Should the recovery in Europe continue, the ECB will be prepared to reduce their asset purchases in a number of ways. If the ladder were to happen and their recovery became sluggish, The Bank is ready to increase their asset purchases, in addition to the lower for longer interest rates.