ECB likely to further cut its already negative deposit rate as Fed gets ready to hike rates
Developments in the U.S. and Europe this week are set to widen the gap between the likely path of interest rates in the two regions and add to currency-market turbulence that has produced a 12% increase in the value of the dollar against the euro since the start of the year.
The European Central Bank is expected to drive eurozone interest rates even further into negative territory when its policy-making committee meets Thursday. A day later, the U.S. jobs data for November are widely predicted to confirm the Federal Reserve’s course to raise rates as soon as mid-December, the first increase in nine years.
The ECB, which began forcing institutions to pay in order to park money with it in June 2014, is expected to begin charging at least an additional tenth of a percentage point.
The hope is that a rate of -0.3% or -0.4% will raise the cost of storing cash with the ECB to the point where banks will instead choose to put it to work in the riskier private sector, pumping life into the struggling European economy. The move could also make European assets less attractive compared to other economies’, weakening the euro’s exchange rate.
