Euro is eking out some small gains today, following yesterday’s huge drop against all major counterparts. Forex traders aren’t expecting much, though. The big shocker from the ECB is likely to result in general euro weakness for a while.
For months, Forex traders and other have been speculating about what the ECB would do to help boost the eurozone economy. Any move would, of course, weaken the euro, and Forex traders have been preparing for that. However, any move always seemed on the horizon.
Even after Mario Draghi‘s recent remarks in Jackson Hole, few analysts expected such direct action so soon. Yesterday’s rate cut, designed to penalize banks for holding the euro rather than making sure it gets into the economy, has transformed the euro into a funding currency.
It’s quite likely now that the euro will become part of carry trades — but on the other side. Euro is now cheap to borrow, and could be used to purchase higher-yielding assets. It looks as though the yen might have some serious competition.
For now, the euro is a little higher, but it’s still weak.
At 10:23 GMT EUR/USD is up to 1.2959 from the open at 1.2944. EUR/GBP is up to 0.7941 from the open at 0.7926. EUR/JPY is up to 136.2880 from the open at 136.2540.
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