Talking Points:
- ECB’s Nowotny reveals there is no realistic prospect of a rate cut
- Nowotny says may have to live with a strong Euro
- EUR/USD rallies above 1.3800
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The Euro jumped about fifty pips against the US Dollar on ECB’s Nowotny’s revelation that there is no realistic prospect of a cut to the benchmark interest rate. The president of the Austrian central bank said that policy makers will have to live with a strong Euro, and he also mentioned that the European Central Bank will not likely cut the deposit rate either.
Nowotny’s comments contradicted ECB President Draghi, who said earlier this month that the rate will remain at current or lower levels for an extended period of time. Draghi had mentioned in June that cutting the deposit rate into negative territory was one of the unconventional tools being considered at the time. The ECB has kept the interest rate at 0.5% since a 25 basis point cut in May of this year.
Therefore, Nowotny’s comments suggest that a rate cut is not really on the table, and he further confirmed Draghi’s refusal to suggest a Euro exchange intervention earlier in the month. Draghi did mention in October that improved economic points, like a more optimistic consumer confidence, reflect a start of an economic recovery in the Euro-zone. An end to ECB rate cuts and an eventual turn to the possibility of raising the interest rate are Euro positive.
The Euro rose above 1.3800 against the US Dollar following Nowotny’s comments. EUR/USD may see resistance by the near 2-year high set recently at 1.3832, and support may come in by a previous high set at 1.3710.
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EUR/USD 1-Minute: October 29, 2013
Chart created by Benjamin Spier using Marketscope 2.0
-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to instructor@dailyfx.com .
