The EUR/USD exchange rate is a foreign exchange spot rate that measures the relative values of two currencies, the euro and the U.S. dollar. When the euro appreciates relative to the U.S. dollar, the EUR/USD exchange rate (and the value of the Securities) increases; when the euro depreciates relative to the U.S. dollar, the EUR/USD exchange rate (and the value of the Securities) decreases. The EUR/USD exchange rate is expressed as a rate that reflects the number of U.S. dollars that can be exchanged for one euro in the interbank market for settlement in two days. Effective December 18, 2008 the EUR/USD exchange rate will be the rate reported each day on Bloomberg screen EURUSD WMCO Curncy <GO> at approximately 4:00 p.m., London time, or any successor page.
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"We are clearly not very happy at the moment," says ECB board member Christian Noyer when asked about the strength of the euro (FXE). "It's clear that when the euro starts to strengthen it creates additional downward pressure on the economy and additional downward pressure on inflation. Both cases are not warranted at the moment."
Noyer, however, doesn't signal any new policy ease, instead calling the "extreme degree" of stimulus appropriate for now. The ECB does, of course, stand ready to act as necessary.
In the green earlier, the euro is now slightly lower on the session.
The euro pops above $1.38 as Mario Draghi - in his post-ECB meeting press conference - gives no indication in the early-going of any consideration of further monetary ease. It had been thought declining inflation might prompt action, but Draghi calls the upside and downside risks to price developments broadly balanced over the medium-term.
The ECB has little choice but to get into the QE business, says BNP Paribas, noting persistent surprises to the downside in inflation "eroding the safety margin against deflation ... Additional conventional policy easing will not deliver sufficient monetary accommodation for the price stability mandate to be met."
Annual inflation in the eurozone is running at 0.7%, far below the roughly 2% target of the central bank, and Goldman Sachs predicts the rate will fall to just 0.4% in March.
BNP sees €300B-€500B of purchases in the initial phase of an ECB QE program likely to commence in H2. The impact, says the bank, will be a big one, particularly in the government bond rates of Spain and Italy which would fall 60-80 basis points across the curve. This just in: Spanish and Italian 10-year paper yields 3.54%, just 87 basis points more than U.S. 10-year Treasurys. Is it conceivable that Spanish and Italian 10-year notes will yield less than Treasurys by year-end?
Taking the benchmark deposit rate to negative territory "is something we are considering very seriously," says ECB board member Benoit Coeure, quickly adding not to expect too much effect on the economy from the move.
Theoretically, the move would induce banks currently parking money at the ECB (and earning 0%) to find better things to do with it, like lending it into the economy ... theoretically.
The euro (FXE) takes a quick drop, now off 0.5% on the session and buying $1.3575.
Germany's Constitutional Court has decided to refer a complaint against the European Central Bank's Outright Monetary Transactions (OMT) program, which allows the ECB to buy sovereign debt in the secondary market, to the European Court.
The German court believes there are "important reasons to assume that it exceeds the European Central Bank's monetary policy mandate and thus infringes the powers of the member states, and that it violates the prohibition of monetary financing of the budget."
However, the court "also considers it possible that if the OMT Decision were interpreted restrictively," it could be legal.
The court is due to rule on the legality of the eurozone's permanent bailout scheme, the European Stability Mechanism, on March 18.
This is "huge," tweets Reuters Jamie McGeever. Is "Germany giving up (its) veto, opening (the) door to outright QE?"
The euro, which was bumbling fairly innocuously, has taken a bit of a dive and is -0.2% at $1.3564. The DAX is -0.1%. (PR)