It seems that participants of the financial markets have been puzzled by the decisions of the US Fed and some other central banks.

The USD significantly dropped against major counterparts; the pair EUR/USD has strengthened over 200 points over two days after the announcement of the US Fed interest rate decision.

The US Fed has also increased pressure on the USD, after making a decision not to raise interest rate at the meeting of the US Fed on 16 March. The US Fed also downgraded the forecast of further tightening monetary policy. Market participants started to believe that monetary policy can be softened in future, which was a change, compared to the U.S. Fed’s opinion expressed at the meeting on 15-16 March.

On 10 March, ECB has expanded QE program; the pair EUR/USD has grown from the level of 1.1000 by 315 points after the publication of the US Fed decision.

ECB is targeted at supporting economic growth in Eurozone, decrease in inflation and weakening in Euro. These targets seem difficult to achieve, as all attempts of ECB are in vain. The pair EUR/USD has grown and is now at the local highs at the levels of 1.1350 and 1.1400, returning to the levels a year ago.

ECB might realize the futility of the efforts and the head of the ECB Mario Draghi desperately protects extra soft monetary policy of the bank.

Last Friday, a chief economist of the ECB, Peter Pratt, has shattered the illusion that the decrease in the interest rate has been completed and the central bank has exhausted its possibilities. His statement contradicts to the statement of the head of ECB Mario Draghi who said that central bank was not going to lower interest rates any further although it might happen if the conditions change.

Peter Pratt said last Friday that if the prospect deteriorates, the decrease of interest rate would be one of the possible measures. ECB can even undertake “dumping money from a helicopter” which is the last resort. It must be noted that ex head of the US Fed Mr Bernanke also used the expression “dumping money from a helicopter”. US Fed had used this method until its meeting in December. It looks like this strategy of the US Fed had produced good results: American stock indices grew for the reporting period and the US economy was showing stability and growth dynamics, unlike many others.

Conclusion: ECB will continue to stick to extra soft monetary policy. Until the next meeting of ECB on 21 April, the bank will carry out verbal interventions from time to time aimed at reducing strength in Euro and preventing the rise in the pair EUR/USD.




The material published on this page is produced by LiteForex and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC; furthermore it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.



Follow us in social networks!
Live Chat
Leave feedback