With speculation growing that the European Central Bank is likely to undergo a transformation to a looser policy after its next monetary policy meeting, the Euro has been under relentless as a result. That, in turn, has provided some lift to the U.S. Dollar Index, which has held close to a 2-week peak which came about as investors sold off as the Euro’s value fell, and also as FX players closed out their Sterling longs ahead of next week’s Bank of England policy announcement.
As reported at 1:41 p.m. (JST) in Tokyo, the U.S. Dollar Index traded at 80.490 .DXY, easing back slightly from yesterday’s peak at 80.581 .DXY but still close to a break of the April 4th pea at 80.599 .DXY which could take the Index to a 3-month high. The EUR/USD traded at $1.3604, just hovering above yesterday’s low of $1.3587.
ECB Embarking on Historic Move?
A large majority of economists and analysts recently polled believe that the ECB will be cutting its deposit rate which would put that into negative territory, meaning a “penalty” imposed on the banks that park their money with the ECB. The goal is to encourage banks to put their money elsewhere, i.e., other Eurozone banks which would in turn, theoretically, stimulate lending. If the ECB does undertake this decision, it would make the ECB the first major central bank to take such unconventional action.