Trade Desk Thoughts - Euro-area Minimum Bid Rate

Euro-area Minimum Bid Rate Actual 4.25%, Expected 4.25%, Previous 4.25%

Release Explanation: This is the Interbank overnight lending rate. It sets the tone for mortgages, commercial loans, and all economic lending criteria. The ECB President is Jean Claude Trichet, Vice President is Alex Weber, who is also the head of the German Bundesbank. An increase in Interest Rate will have the effect of slowing economic growth. A decrease in Interest Rate is used by a Central Bank to stimulate economic growth. Economic strength can create Inflation, raising Interest Rates is one of the easiest way to contain Inflation.

Trade Desk Thoughts: European Central Bank officials have voted to leave the minimum bid rate unchanged at 4.25%. This comes, after the bank had decided to raise the interest rate earlier this year to anchor inflation expectations. However, the Euro-area economy has started showing signs of exhaustion, and the economy even contracted in the second quarter. In the last few weeks, some ECB officials said the bank would probably have to raise rates if growth starts to pick up in the fourth quarter, in-line with banks projections. The market’s attention now switches to the press conference.

Forex Technical Reaction: The euro gained 15 pips after the release. Awaiting the report, the pair moved in a 60 pip range in the overnight session. Against the swissy, the euro moved flat and is trading just under the neutral pivot point.

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