Forex Flash: Dollar receives support from QE impact - BTMU

FXstreet.com (Barcelona) - Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that the US dollar is continuing to derive support from further monetary easing outside of the US which is helping to offset the negative impact of the Fed’s QE3 programme upon the US dollar.

He adds that the RBA easing today quickly followed last week’s decision from the ECB to cut its refi rate by 0.25 point while also leaving the door open to further easing ahead. Further, he sees that ECB President Draghi’s remarks that the ECB are “open minded” to lowering the deposit rate into negative territory initially weighed heavily upon the euro. However, he comments that the euro has since stabilized following comments from ECB Governing Council member Nowotny on Friday stating that “I want to make it very clear … that there has been a discussion about going into negative territory and we are open minded about it. But it is nothing that has immediate effects.”

Hardman feels that his comments appear to suggest that moving the deposit rate into negative territory is a sensitive subject for the ECB and that consensus has not yet been reached on the Council. He writes, “It supports our view that the ECB is unlikely to implement negative deposit rates in the near-term although it remains a policy option if the ECB exhausts conventional policy easing and the recessionary conditions in the euro-zone remain entrenched and disinflationary pressures continue to build. We still anticipate that the euro will remain stable in the near-term before likely weakening in the second half of the year.”