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Forex Flash: ECB not to be the first CB to impose a negative deposit rate - BBH

FXstreet.com (Barcelona) - According to Brown Brothers Harriman: “On May 8th, banks further trimmed their overnight deposits at the ECB and at 120 bln euros is the least amount since November 2011,” notes Marc Chandler, Global Head of Currency Strategy at BBH, while “Banks increased their current account holdings to 46 bln euro to 347 bln, which is the most since mid-April,” the analyst adds. “We see rise of the current account holdings as a reflection of banks preparing for their reserve maintenance period,” he suggests.

From BBH: “ECB President Draghi suggested last week that the central bank was taking a fresh look at the deposit rate. There does not appear to be any economist that thinks it is a good idea. The reasons vary, but the two main reasons are that it would likely prove ineffective in boosting lending and would be potentially disruptive to the money markets and financial institutions.”

“The implications of a negative deposit rate go well beyond the 120 bln of overnight deposits at the ECB,” Marc expands. “A negative deposit rate would likely downward pressure on other short-term rates and exacerbate the capital preservation efforts. It would threaten profitability of a range of activities. No major central bank in the last quarter of century has done so and after a closer study we expect the ECB not to be the first to impose a negative deposit rate,” he concludes.

Forex Flash: Gold likely to trade with an upward bias short term - Nomura

Gold remains subject to two opposing forces, according to Saeed Amen and Geoffrey Kendrick, FX strategist at Nomura: "The liquidation of gold ETF holdings on the downside and support from physical demand, particularly from Asia, supporting the price" the Nomura strategists said.
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