FXstreet.com (Barcelona) - The ECB decision yesterday is very much the focus of the market today ahead of the key non-farm payrolls data from the US later. The 0.25-point cut and measures to be detailed helping to improve the asset-backed securities market in order to improve credit flows to the real economy were the key actions announced but it was the admission that the ECB had an open mind to cutting the deposit rate to negative territory that grabbed all the attention. According to the BTMU Research Team, “It certainly helped weaken the euro and helped reinforce the impression of an ECB wanting to act strongly.”

We certainly are more inclined to take the view that this was more talk than a signal of imminent action. If the FT lead story is to believed, ECB Executive Board Member Asmussen opposed the refi rate cut (Weidmann supported it according to the story) and it is therefore hard to think Germany would support negative interest rates.

There must also be doubts about what the net impact would be. Charging banks could of course impair banks willingness to lend and may in fact speed up the repayment of LTRO funds given the negative carry would widen back out under a negative interest rate regime. “That could mean a faster shrinkage of the ECB’s balance sheet and a higher euro. So this will be a last resort for much later on. Another refi rate cut would be more likely as a next step.” the team adds.