LONDON: Short-term euro zone money market rates fell on Wednesday after European Central Bank President Mario Draghi said withdrawing exceptional monetary policy measures was a distant prospect.
The comments calmed markets after rates spiked last week when the US Federal Reserve laid out a clear plan to reduce monetary stimulus.
Short-term interest rates could fall further going into next week's ECB meeting, with analysts expecting Draghi to continue to strike a soft tone as the euro zone economy is lagging that of the US
"I expect a reverse of the widening into the ECB meeting following Draghi's comments that the ECB was far away from the exit and because Europe is basically a different story than the US," Commerzbank rate strategist Benjamin Schroeder said.
"(The recent rise in money market rates) was a little panicky, a little intense. I don't think we will have that again any time soon."
Euribor futures rose 2-6 ticks across the 2013-2015 strips, indicating expectations that the benchmark bank-to-bank three-month Euribor rate a gauge of expectations of future official interest rates and liquidity conditions - will settle at lower levels than initially thought over the period.
The December 2014 Euribor future was 6 ticks higher at 99.35, implying that the market expects the underlying three-month Euribor rate to settle at 0.65 percent rather than 0.71 percent. It was at 0.22 percent on Wednesday.
The rate implied by the December 2014 Euribor hit a four-month high of 0.90 percent on Friday, almost double their levels prior to the Fed comments. Analysts said Friday's highs were consistent with expectations that the ECB would begin hiking rates next year.
"I don't believe what the market is saying is an expression of any fundamental change in ECB expectations... I don't think anybody expects rate hikes next year," said Anders Svendsen, chief analyst at Nordea in Copenhagen.
"The recent sell-off is overdone and I think rates can come back lower again."
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