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The ECB Disappoints Markets with Its Monetary Policy Decisions

Sarah Sands

The ECB Failed to Meet Global Market Expectations

ECB’s key policy decisions

The European Central Bank (or ECB) declared its key policy decisions after its meeting on December 3, 2015. The ECB’s Chief, Mario Draghi, announced the central bank’s major moves on monetary policy decisions at a press conference.

The decisions included the following:

  • The interest rate on the deposit facility will be decreased by ten basis points, from -0.20% to -0.30%, effective from December 9, 2015.
  • The interest rate on the main refinancing operations and the interest rate on the marginal lending facility will remain unchanged at 0.05% and 0.30%, respectively.
  • The ECB extended its existing asset purchase program the end of March 2017.

Global impact

Global markets rated lower after Draghi’s announcement because they were expecting more from Draghi on quantitative easing (Or QE), and he failed to deliver. The SPDR Euro Stoxx 50 ETF (FEZ) and the iShares MSCI Eurozone (EZU) fell 0.98%, and 0.36%, respectively, on December 3, 2015. Also, the European banking stocks ING Groep (ING), Unicredit (UNCFF), and Deutsche Bank (DB) fell 2.1%, 2.3%, and 3.1%, respectively. In addition, the SPDR S&P 500 ETF (SPY) fell 1.4%, and the Energy Select Sector SPDR ETF (XLE) fell 2% on December 3, 2015.

However, in the commodity space, the United States Oil ETF (USO) rose 2.3% on December 3, as investors’ focus shifted towards the OPEC (Organization of the Petroleum Exporting Countries) meeting on December 4, 2015. The SPDR Gold Shares (GLD) rose 1.1% on December 3, 2015.

Impact on the euro to US dollar exchange rate

The euro to US dollar currency pair rallied to 1.08 after the announcement of the ECB’s statement on a rate cut of ten basis points on the deposit facility.

In the next part of the series, we’ll discuss how the ECB’s statement impacted the major indexes of the Eurozone.

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