The euro plunged against the dollar, after the unexpected decisions by the European Central Bank, which postponed the rise in interest rates at the end of the year, instead of next summer, and announced a new round of liquidity auctions (T-ltro) starting from next September. Some operators expected one or the other thing, but almost no one expected that Frankfurt would adopt, already from this meeting, both measures. Therefore, the monetary policy stance has been completely revised by the central bank in a much more dovish perspective and Governor Mario Draghi is destined to go down in history as the first governor not to have raised interest rates even once during his mandate.
The reason for these extremely accommodating measures was explained by Draghi himself during the press conference that followed the decision. The eurozone’s macroeconomic environment has weakened in recent months and inflation has remained muted, far from the 2.0% target. Protectionism, trade wars, Brexit and slowing domestic demand. The health of the euro area continues to arouse concerns among the central bankers, who have thus decided to immediately take incisive countermeasures.
The move was not expected by traders, by observing the trend of the Euro-dollar immediately after the publication of the statement. A few moments before the decision, the exchange ratio was on the 1.1307 threshold, unchanged compared to the opening value. After the announcement, in just a few minutes, it dropped by about -50 pips, awaiting Draghi’s speech. The descent continued during the press conference, down to the minimum level since May 2017. The daily variation amounted to around 140 pips. With this drastic strategy change by the ECB, the euro can hardly recover in the short term.