Euro Posted Gains, ECB Turned Dovish in the Policy Meeting

Euro rose to October 2015 levels

The euro rose to its highest level against the US dollar since October 2015 even though ECB (European Central Bank) Chief Mario Draghi commented on increased accommodation in the monetary policy. The strength in the euro was powered by weakness in the US Dollar Index. It fell due to a dovish statement by New York Fed President William Dudley. There were concerns about the US dollar’s increased value with respect to other currencies. If conditions continued to tighten, it would weigh on the Fed. Investors started a sell-off in the US dollar. The probability of a rate hike by the Fed in the near term diminished. The US Dollar Index measures the strength of the US dollar against a basket of currencies including the euro. It closed on negative footing. This led to high gains in the euro.

Euro Posted Gains, ECB Turned Dovish in the Policy Meeting

Policy action as prices deteriorate

ECB Chief Mario Draghi hinted towards strong action by the central bank in its efforts to rescue depressed inflation levels. He expressed that the ECB won’t “surrender” to low inflation. This generated speculations of increased monetary stimulus in future policy meetings. Inflation has mainly been dampened by lower crude prices. Trade activity has also been showing signs of a slowdown. Draghi said that the risks of acting too late outweigh the risks of acting too early. Consumer inflation stands at 0.4% on an annual basis for January.

Impact on the market

Looking at the performance of ETFs across the Eurozone, the iShares MSCI Eurozone ETF (EZUwas trading higher by 0.21% on February 4, 2016. The Vanguard FTSE Europe ETF (VGKwas trading on a flat note for the day. It fell by 0.04%.

Analyzing European ADRs (American depositary receipts) in the banking sector, Deutsche Bank AG (DB) rose by 1.9%. Banco Santander (SAN) ended higher by 5.4%. Aegon (AEG), a life insurance company, rose by 1.9% at the end of the day.