The European Central Bank pushed one of its key interest rates deeper into negative territory Thursday, and re-started its controversial quantitative easing program, in one of the final decisions under the eight year tenure of President Mario Draghi.
The ECB increased the charge it applies to regional lenders holding cash in the central bank's overnight deposit facility by 10 basis points to -0.5%, matching the lowest rate withing the Bank's targeted lending operations. No changes were made to the Bank's main refinancing rate, which sits at 0%.
The ECB also said it would re-start the dormant quantitative easing program on November 1 with monthly purchases of government, agency and corporate bonds of around €20 billion, an run them "for as long as necessary", and would only end when the Bank starts raising its key interest rates.
"The Governing Council now expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics," the ECB said in a statement.
The euro slipped 0.8% lower to 1.0935 against the U.S. dollar immediately following the ECB rate move, the first reduction since 2016, while benchmark 10-year German bund yields traded more deeply into negative territory at -0.645%. Spot gold prices rose 1.5% to $1,519.39 per ounce.
Benchmark 10-year Treasury note yields rallied 4 basis points to a session low of 1.68%, helping boost futures contracts on the Dow Jones Industrial Average to indicate a 90-point opening bell gain.
Draghi, who closes his eight-year term as ECB President next week, had hoped to end his tenure in Frankfurt with a modest rate increase, even guiding markets towards such a move at the end of last year. However, the ongoing trade war between Washington and Beijing, Brexit uncertainty and myriad political challenges in the single currency area have pinned down growth prospects and raised new deflation risks as its biggest economy -- Germany -- flirts with potential recession.
"This is Mario Draghi's final 'whatever it takes'. Despite all market excitement now, the question remains whether this will be enough to get growth and inflation back on track as the real elephant in the room is fiscal policy," said ING's chief Germany economist Carsten Brzeski. "It is clear that without fiscal stimulus, Draghi's final stunt will not necessarily lead to a happy end."
However, the downside move in the euro, and the subsequent gain for the U.S. dollar, which jumped 0.25% to 98.90 against a basket of six global currencies, are likely to raise the ire of President Donald Trump.
Trump called out Draghi in a pair of Tweets earlier this spring, calling his signals of potential stimulus "very unfair to the United States" and equating the easing options with currency manipulation.
The President has since repeated his view that the U.S. dollar is "too strong" on many occasions, and has persistently pressured Federal Reserve Chairman Jerome Powell to lower interest rates in order to match easing moves from other central banks around the world.