This The Wall Street Journal blog posting discusses why the euro has not continued to sharply weaken following the European Central Bank’s (ECB) announcement last week that it would be the first major central bank to implement a negative deposit rate. The article points out that the ECB’s policy announcement was really just an incremental move relative to the large quantitative easing programs implemented by the U.S. Federal Reserve and the Bank of Japan. Moreover, analysis by Ned Davis Research showed that overnight deposits at the ECB have already fallen by 96% and what remains is not enough to have a material impact on the Eurozone economy. Thus, the ECB’s move to a negative deposit rate largely looks like a policy designed to get headlines and impact psychology. If this analysis proves correct the euro may not weaken as much as the ECB desires and deflationary pressures in Europe may persist.
Why the Euro Is Strong after ECB Went Negative
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