The euro fell and bonds rose after the European Central Bank announced interest rate cuts and a new quantitative easing program to support the region's weak economy. The single currency turned out to be about a two-year low, as the monetary institution said it would lower interest rates to -0.50% and resume its bond purchase program by 2.6 trillion euros in November at a rate of 20 billion euro per month. The regulator also said that it will introduce a two-tier negative rate policy system.
Eurozone bond yields fell to negative territory this year amid expectations of more stimulus from the ECB in the face of growing geopolitical risks, from Brexit to the US-China trade war. Meanwhile, the euro has hit its lowest level in the past two years this month.
The single currency fell by 0.42% to $1.0960 at 13:00 London time. Yields on 10-year German bonds fell by 4 basis points to -0.61%, while yields on sovereign bonds in Italy fell by 13 basis points to 0.85%.
But soon the euro won back all losses after ECB President Mario Draghi noted that the probability of a recession is low, adding that negative indicators created many positive effects. He fended off Trump's claims after yesterday's rate cut, saying the ECB was not aiming at a competitive devaluation. EUR / USD soared more than a figure from the low of the day, rising at the moment to the level of 1.1041. Earlier, the euro fell by 0.8% to 1.0926.
The euro’s upward movement is partly due to a short coverage in EUR / JPY before the positive opening of the NYSE; the spot is now approaching the large 1.1000 options that expire in the next two days. That is, they can keep the market on this level until the weekend.