Finding meaning in one-day price changes is always tricky. With Americans on holiday and the rest of the English-speaking world glued to TV screens watching the endless grilling of ex-Barclays chief Bob Diamond, Wednesday’s markets were even more questionable than usual.

Still, the message they were sending was that the excitement from last week’s summit has evaporated. Spanish two-year bond yields had their first rise since the summit, German bond yields were down as investors sought safety, and European shares fell a little.

But something funny is going on with the euro. Even after falling back, eurozone equities are up 6.7 per cent since the summit, and are back up to where they stood a month ago. Meanwhile, the currency has given back more than half its post-summit gains and at $1.25 is where it was a week earlier.

The summit was less of a success than European leaders would have you believe. Short-term German bonds are a decent measure of the level of fear in Europe, and two-year yields have actually fallen since the summit. With two-year US Treasuries flat, that has made the euro less appealing for traders to hold.

The European Central Bank is expected to make the euro even less attractive on Thursday by cutting interest rates, both the headline borrowing rate and the sensitive deposit facility. Laurent Fransolet at Barclays Capital says money markets’ pricing suggest 50-50 odds that the deposit rate is cut to zero. A 25bp cut in the headline borrowing rate from its current 1 per cent is widely expected.

If the ECB goes further, it will be a handy test of investor sentiment. A bigger cut would help the periphery (a little), reducing pressure on the currency. So a big cut might juice up the currency for a while by suggesting the ECB is ready to be more active than most believe. But as investors realise that saving the region is most easily done by printing money, it will hurt in the longer run.

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