Yesterday’s big news was the European Central Bank’s policy announcements, announced in Mario Draghi’s press conference at lunch time.

Markets were braced for either some additional stimulus in the form of extended Quantitative Easing or a cut in deposit or benchmark interest rates. In the event, Mr Draghi announced more extreme measures than had been anticipated, with QE extended to €80bn per month, the main interest rate cut fro 0.05% to zero, and deposit rates pushed further into negative territory to -0.4%.

The ECB also cut its growth and inflation forecasts considerably. If the new package of stimuli doesn’t spark some increased economic activity, deflation and recession fears will surely start to take hold.

The ECB has now used all weapons at its disposal to try to stave off deflation and stimulate more lending and therefore growth across the single currency zone. Taken as a sign of desperation, the Euro weakened considerably as the announcement was made, reaching its cheapest level against the Pound for over a month.

The spike in rates was however short lived. As the surprise of the strength of the package sunk in, Mr Draghi confirmed that there would be no additional stimulus to come in the coming months – effectively closing the door for future rate cuts and QE increases – and the Euro started to strengthen back, the Pound losing an amazing 3c from the peak of rates just after 12.00 to the close of European trading.

So exchange rates remain extremely volatile and susceptible to sharp short term movements – and for those of you sending Euro payments, the worry is that despite yesterday’s massive stimulus package, the Euro has in fact ended up more expensive, and it’s hard to see where better rates will come from, this side of the UK referendum on EU membership.

Quiet day ahead

There is no major data expected today, except UK trade balance which has come out better than expected this morning, giving the Pound some scope for recovery given yesterday’s movement. On the other hand, the British Chambers of Commerce have this morning downgraded the UK’s growth forecast in a downbeat message about the prospect for the UK economy.

This afternoon we also have Canadian unemployment and US import & export prices before markets take a breather for the weekend.