A surprising twist in the Eurozone saga left the Euro trading close to a nine-month low against the Pound. The common currency also posted its most significant decline against the US Dollar for two years as the European Central Bank shocked industry experts by issuing a rate cut.
The ECB cut the main refinancing rate to a new record low of 0.25 per cent in an attempt to strengthen the Eurozone’s fragile economic recovery.
While speculation surrounding the possibility of an ECB rate cut has been mounting since last Fridays’ inflation report for the Eurozone was published, the majority of economists surveyed envisaged the central bank holding the refinancing rate at 0.5 per cent. However, with the ECB warning of a ‘prolonged period of low inflation’ it seems they are intent on holding key interest rates at historic lows for an extended period. Draghi once again reiterated that fiscal policy would stay accommodative for as long as it takes for the Eurozone’s economic recovery to stabilise and gather momentum.
Although the Euro extended declines against the US Dollar following a stronger-than-forecast US GDP report, expectations surrounding the upcoming US non-farm payrolls data piled pressure on the USD/EUR pairing. The Euro also trimmed its decline after a report intimated that the Bundesbank President and at least two more influential ECB officials were against cutting rates to fresh record lows.
This sign of dissent in the ranks prompted this response from economic strategist Andrew Wilkinson; ‘News after the press conference suggests the Bundesbank wasn’t behind today’s rate cut. That shows the vote wasn’t unanimous and one more potential rate cut can be pretty much ruled out.’
The Euro is currently trading against the US Dollar in the region of 1.3492
Yesterday Draghi also stressed the importance of supporting the German economy. As the largest economy in the Eurozone Germany has been a driving force in its recovery, but having to shore up flagging nations has taken a toll on the superpower.
Draghi stated that fiscal policies which lessened Germany’s competitiveness shouldn’t be pursued, and that other nation’s need to work at making their economies more competitive.
During a speech in Hamburg, in which he referred to Germany as ‘a model for other countries’, Draghi commented; ‘One of the greatest problems that the Euro area has today is great imbalances […] and these imbalances have to be overcome. The best way to do it from our viewpoint is do it without weakening the strongest [economy] – weakening the strongest doesn’t make the weaker stronger.’
While today’s German trade balance data could impact the Euro, movement in the EUR/USD pairing is likely to be driven by the US non-farm payrolls. If the US employment data fails to impress, increasing the odds of the Federal Reserve delaying tapering easing until at least next Spring, the Euro could rebound against the ‘Buck’.
Euro (EUR) Exchange Rates
As of 07:00 am GMT
The Euro/US Dollar Exchange Rate is currently in the region of: 1.3399 <
The Euro/Pound Sterling Exchange Rate is currently in the region of: 0.8329 <
The Euro/Australian Dollar Exchange Rate is currently in the region of: 1.4153 <
The Euro/ New Zealand Dollar Exchange Rate is currently in the region of: 1.6100 <
The Euro/ Canadian Dollar Exchange Rate is currently in the region of: 1.4001 <