The European Central Bank cut rates as low as they will go on Thursday and announced another round of cheap cash for banks, hoping the euro, which has helped knock down inflation in the fragile euro zone economy, will fall.
Yet the ECB’s efforts yielded little more than a lukewarm response from markets, suggesting that the only thing that will get the euro to fall any further in the very near-term is a change in the outlook for U.S. rates, and through that, a stronger dollar.
A Federal Reserve rate rise isn’t likely for more than a year, despite another solid jobs U.S. report on Friday that took employment back to where it was before the financial crisis set in nearly six years ago.
President Mario Draghi’s latest rhetoric implies the ECB will need to turn a blind eye over the coming months to dangerously low inflation – as well as deflation in several smaller, weak southern European economies – and hope for the best. But euro zone deflation remains a real threat.