Source: Jeff Yoders/MetalMier
World central banks are under pressure to provide monetary stimulus and to keep interest rates low in response to volatile financial markets, low oil prices and a slowdown in China and emerging markets.
Free Download: The March 2016 MMI Report
Japan’s central bank surprised markets in January when it lowered interest rates into negative territory for the first time in its history, as the country tries to fight deflation. Meanwhile, markets expect the Federal Reserve to leave short-term interests rates flat at their next meeting on March 15-16.
On Thursday, in a new conference, the European Central Bank said it would provide more stimulus measures including additional bond purchases and extremely cheap loans for banks. However, the bank also pointed out that it probably won’t lower interest rates more.
Stocks Down, Euro Up
How did the market react?
The Euro Index rises after the ECB conference. Source: MetalMiner analysis of @StockCharts.com data.
First, European stocks ended the day sharply lower signaling that investors were not impressed with the larger-than-expected stimulus measures. Second, the euro strengthened as the central bank said its emphasis would shift away from interest rates and toward other policy measures.
US Dollar Keeps Weakening
The US Dollar Index fell after the ECB conference. Source: MetalMiner analysis of @StockCharts.com data.
Meanwhile, the dollar index fell sharply as the euro rose. A weaker dollar is bullish for base metal prices. In February we already saw strength in the base metal complex thanks to a falling dollar.
Free Sample Report: Our March Metal Buying Outlook
The interest rate policies that world banks take over the next few months will have tremendous repercussions on currency markets. This is important for metal buyers because industrial metal prices could catch a tailwind from a falling dollar. It’s still too early to call for a bear market in the US dollar but after its bull run in 2014, it has traded flat for almost a year now.