ECB may have exhausted the room to cut interest rates - BBH

Research Team at BBH, suggests that the euro turned higher in the middle of the Draghi's post-ECB press conference last month when he indicated (yet again) that the central bank may have exhausted the room to cut interest rates (with a minus 40 bp deposit rate).

Key Quotes

“Several ECB officials have subsequently downplayed this assessment, though some claimed Draghi's remarks were evidence of a secret agreement struck in Shanghai at the end of February. The minutes of the meeting showed that there was a discussion of a deeper rate cut, which also implies that the floor (if there is one) is rather soft.

Although it is unreasonable to expect the ECB to take more action before it can implement and monitor the measures it has already announced, investors should be wary of renewed political and economic stresses. The Dutch rejection of the associational agreement with Ukraine is an expression of anti-EU sentiment in a core country and presents a challenge. Spain appears headed for new elections that will likely be scheduled around the UK referendum at the end of June. Before then, there are municipal elections in early May in the UK and Italy.”