Forex Markets See Spike in Volatility as European Central Bank Introduces Negative Interest Rates

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Forex Trading

: 06 June 2014

In an unprecedented move, the European Central Bank reduced its deposit rate to -0.1%, the first major central bank to use negative rates.

In addition, the benchmark interest rate was dropped from 0.25% to 0.15%.

The initial reaction was a sharp plunge in the shared currency but this was fairly short lived.

Speculation that these measures would do the job, improve the economy and attract investments reversed the daily trend, pushing the euro back up.

As a result, the EUR/USD pair actually ended 61 points higher at $1.3660.

Forex Trading

: 05 June 2014

Whilst some sort of rate cut has already been priced into the euro, the ECB might be in the mood to announce a little extra at its meeting later today.

This saw the shared currency remain under pressure, with the EUR/USD pair dropping 30 points to $1.3598.

The real question on everyone's mind is not whether Draghi & Co are prepared to intervene, but by how much.

Forex Trading

: 04 June 2014

Pressure on the ECB grew yesterday as Eurozone inflation declined by more than analyst forecasts, slipping back to 0.5% against predictions of 0.7%.

There's growing speculation that ECB officials will signal further interest rate cuts at tomorrow's meeting, together with keeping borrowing costs at record low levels.

Given the weaker inflation data, some economists are even suggesting that more aggressive measures will be needed to kick start growth.

For today's session at least, currency traders could well remain in standby mode ahead of the ECB's decision and Friday's Non-Farms report in the US.

Forex Trading

: 03 June 2014

There remains a widely held belief that the ECB will ease its monetary policy at the 5 June meeting as Eurozone inflation is expected to have fallen to 0.6% in May from 0.7% in April.

In contrast, economists are forecasting an improvement in the US labour market, with the Fed considering whether to continue tapering its own asset purchases.

So, it was little surprise to see EURUSD continuing to fall in yesterday's session, with the pair losing 39 points to $1.3596.

Forex Trading

: 02 June 2014

Ahead of the weekend, the euro posted a slight rebound of 28 points against the dollar to $1.3631 as participants preferred to square some of those short positions.

The shared currency has on the back foot since almost reaching $1.40 at the beginning of May as the European Central Bank is expected to ease its monetary policy further at this week's meeting.

By Jonathan Sudaria, 6 June 2014

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