Italian ECB member Visco went on CNBC and said that he sees merit in negative deposit rates. He also mentioned that there are “unintended consequences” in such a move, but that the ECB has the ability to work on that. Cutting the rate could be effective for for the economy if it needs it, said Visco.
This is another confirmation that the ECB is not afraid of the negative effects, and that it sees such a move as advantageous. EUR/USD reacts with a retreat from the 1.30 line towards 1.2960.
Mario Draghi mentioned a negative deposit rate only when he was asked about it in the press conference. His openness, and especially his words about being able to handle the negative effects of a deposit rate sent the euro plunging. However, it was quick to recover within a day, especially as his fellow ECB member Nowotny somewhat distanced himself and said that he was surprised by the market reaction.
However, when Mario Draghi reiterated these words in the following week, it showed that he was serious. And now, the talk continues.
EUR/USD has some support at 1.2960 and more serious support at 1.2880. Resistance is at the round number of 1.30. For more, see the EUR to USD forecast.
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