The European Central Bank (ECB) has again reduced interest rates. This happens at a time of large movements on the bond markets. There is also a shift to more flexible policy by both the Federal Reserve and governments in Europe and Asia. The increasing liquidity can be favorable for investments such as shares and cryptocurrency.
Global relaxation as support for markets
Now that the ECB has reduced interest rates to 2.5%, a further decrease from the peak of 4.5%, markets expect that the Federal Reserve will lower interest rates at least three times in 2025. At the same time, Germany is using a tax incentive package. In addition, China takes comparable measures to support the economy.
These developments can ensure more flexible financing conditions and a greater demand for investments with a higher return. This effect extends to the cryptomarket. Traders anticipate a wider monetary policy that can strengthen the upward trend.
According to Londoncryptoclub, an influential newsletter in the sector, liquidity continues to increase, despite recent concerns about growth slowdown. This would mean that the market, including cryptocurrency, can recover after recent corrections.
Unrest on the bond markets
Although the ECB has reduced interest rates, inflation in the European Union is not yet back on the goal of 2%. This raises questions about the impact of further relaxation on the bond market.
The German 10-year interest rate has risen to 2.8%, the highest level since 2011. This is partly due to the announced tax stimulation of the German government. This has reduced the interest difference between German and American bonds. This supports the euro and puts pressure on the dollar index.
Bonds also rise faster in the United Kingdom than in the US. In Japan, the 10-year interest rate even records a 17-year highlight of 1.5%, now that the Bank of Japan is struggling with inflation after three interest rate increases. This follows a period of almost ten years with negative interest rates.
Large fluctuations on the bond markets make borrow more expensive and can slow down investments. However, the global relaxation policy can partly compensate for this effect. The market now runs on the policy changes of the ECB and the FED in advance.
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Source: https://newsbit.nl/ecb-zet-renteverlaging-in-gang/
