Euro Plunges Against Dollar as ECB Reduces Asset Purchase Program Down to €60 Billion

The ECB shocked markets today with their decision to reduce the asset purchase program (APP) down to €60 billion on a monthly basis - a €20 billion cut from the current monthly rate of €80 billion.

While financial markets reacted negatively to the surprise announcement - especially the EUR/USD - the reduced APP rate comes into effect at the beginning of April of next year, according to the ECB.

The ECB also stated the current €80 billion APP will remain in place until the end of March, 2017, with the possibility of increasing the asset purchase facility again if economic conditions deteriorate:
“If, in the meantime, the outlook becomes less favourable or if financial conditions become inconsistent with further progress towards a sustained adjustment of the path of inflation, the Governing Council intends to increase the programme in terms of size and/or duration.”
In a separate press release, the European Central Bank unveiled new details regarding its public sector purchase programme (PSPP). Securities with minimum maturities of one year will be taken up by the PSPP at the start of January, 2017.

Additionally, the ECB explained that it will start purchasing government bonds with “yield to maturity below the interest rate on the ECB’s deposit facility,” which currently stands at -0.4 percent.

The ECB left the main interest rates for refinancing, marginal lending and the deposit facility unchanged at 0.00%, 0.25% and -0.4%. The EUR/USD pair was impacted the hardest by the ECB press releases and subsequent press conference by Mario Draghi, Governor of the ECB.

At press time, the euro is trading approximately 2.5 percent lower against the dollar, after hitting a daily high 1.0873 - a price not seen since November 11, 2016.

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  1. The plunge is a result of a typical "When in doubt, sell." reaction. A little thought on the subject makes it evident that the ECB cannot forever be in business of asset purchasing. It has to begin cutting purchases at some point. The current uncertainty in Europe is political rather than economic, and the Euro is popular amongst its user base, so expect the markets to correct over the next few days.

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  2. The ECB is preparing itself for the results that will certainly affect the socioeconomic and political climate in Europe. This has began with the recently lost referendum in Italy. As the election season begins there is an overwhelming fear that a swing to the far right could take hold.


  3. it is one of the disadvantages of the one currency policy in europe, those patriotic citizens of a country will awake one day and will try to restore their own domestic currency and leave euro to make their own currency it's status.