THE euro was deep in the red yesterday, having suffered its steepest fall in three years after the European Central Bank stunned markets by cutting interest rates and embarking on a trillion-euro asset-buying binge.
The aggressive shift sent short-term bond yields into negative territory in Germany, France, the Netherlands and Austria, giving investors an overwhelming incentive to sell euros for higher-yielding assets elsewhere.
That stood in stark contrast to the United States, where upbeat data only reinforced the case for the Federal Reserve to wind down its stimulus, driving the dollar higher and sideswiping oil and gold in the process.
“Ourselves along with most market participants were surprised by the degree of the action taken by the ECB,” said Derek Halpenny, European head of Global Markets Research at Bank of Tokyo-Mitsubishi UFJ.
“We believe euro depreciation is what the ECB is focused on for alleviating the near-term downside inflation risks that have become apparent of late,” he added, also saying the bank would cut its end of year forecast for the euro.
The single currency’s capitulation came after ECB President Mario Draghi announced a range of rate cuts and a new plan to push money into the flagging eurozone economy.