The European Central Bank added a new weapon to its arsenal — forward guidance.
The Governing Council expects the key ECB interest rates to remain at present or lower levels for an extended period of time.
Draghi emphasized the plural on ‘rates’, indicating that it applied to all rates, even longer term borrowing costs. He made it clear that the tightening in financial conditions since the FOMC has been unwelcome and that the governing council has injected a downward bias in interest rates for the foreseeable future.
Draghi July 4, 2013 ECB press conference
The statement hurt the euro but as Draghi continued he grew more dovish. On rates, Draghi also hinted at potential cuts, noting there was an extensive discussion and that 0.50% is not the lower bound for the main REFI rate and that 0% isn’t the bound on the deposit rate.
The euro picked up the hints very quickly, dropping to the weekly low at 1.2923 and then falling further to 1.2883. The decline breaks trendline support from May and from July 2012. Next is the trendline from April and the May low of 1.2979.
EURUSD daily chart
