Forex Flash: ECB has wriggle room for rate cuts – UBS

FXstreet.com (Barcelona) - According to Research Analyst Gareth Berry at UBS, “We stress that an ECB cut can still affect the exchange rate, though the marginal impact is indeed weaker as we approach the zero-bound for policy. Nonetheless, there is the strong perception in markets, irrespective of where short-dated money market rates are trading, that the ECB has not reached this stage so there is room to move.”

There will be cursory benefits from a flow perspective: stronger export earnings encourage foreign equity investment (as we have seen with the Nikkei) and cheaper valuations in general could spur interest in fixed income markets as well.

Even without the exchange rate element, we have already seen over the past few trading sessions how some cyclical stocks are already rallying as a sign of confidence - a clear sign that growth is much more of a catalyst for risk-asset prices than any other factor.