The headlines and text from MNI sources story on the ECB told two different tales.
The headlines talked about the possibility of further rate cuts but the story isn’t bad news for the euro. They sources in the story say the main refi and deposit rates could each be cut by 15 bps to 0.00% and -0.25% but that would be instead of QE. Both sources indicated some skepticism on QE and whether the ECB could reach any kind of consensus on its effectiveness. A 10bps cut is less dovish than QE.
While they emphasized that rates will stay low for years, they said the ECB will need until close to year-end or into early 2015 to make a decision on any changes.
After falling as low as 1.3576, it’s bounced back to 1.3596. I fear a larger bounce is coming, especially with US yields falling faster than their German counterparts. The downgrades to US Q2 growth following consumer spending continue to roll in, Goldman Sachs now sees 3.5% versus 4.0% previously.
