ECB’s Low Rate Stance Weighs on Euro ETF

ETF Trends

The euro exchange fund dipped while European equities advanced as the European Central Bank remained committed to low rates while mulling unconventional measures to combat low inflation.

The CurrencyShares Euro Currency Trust (FXE) fell 0.4% Thursday. FXE is still up 5.9% year-to-date. [Bearish ETFs to Play a Weakening Euro]

The euro to U.S. dollar exchange rate was hovering around $1.36 Thursday.

“The key ECB interest rates will remain at present levels for an extended period,” ECB president Mario Draghi said in a press conference, Bloomberg reports. “The combination of monetary policy measures decided last month has led to a further easing of the monetary policy stance. The monetary operations to take place over the coming months will add to this accommodation and will support bank lending.”

The ECB is backing as much as 1 trillion euros, or $1.36 trillion, in two initial tenders and a series of quarterly auctions under its targeted longer-term refinancing operations, or TLTROs.

Draghi also hinted that the central bank could implement quantitative easing down the line.

“If our medium or long-term assessment of inflation were to change, we certainly would use this broad asset purchase program,” Draghi said, according to a Wall Street Journal article.

The central bank has been loosening its monetary polices in an attempt to lift a stubbornly low inflation level, which currently sits at 0.5%, below the ECB’s target of just below 2%.

With the ECB’s commitment to looser monetary policies to support economic growth, European stocks have also strengthened. The Vanguard FTSE Europe ETF (VGK) was up 0.5% Thursday. Meanwhile, the WisdomTree Europe Hedged Equity Fund (HEDJ) , which diminishes the negative effects of a depreciating euro currency, was up 1.2% Thursday. Year-to-date, VGK is up 6.2% while HEDJ gained 5.9%.

CurrencyShares Euro Currency Trust

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For more information on the Eurozone, visit our Europe category.

Tom Lydon’s clients own shares of HEDJ.

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