Euro Declines to 14-Month Low After ECB Unexpectedly Cuts Rates
London (Sept 4) The euro dropped to the lowest level versus the dollar since July 2013 after the European Central Bank unexpectedly cut its main refinancing rate to a record 0.05 percent.
Just six of 57 economists surveyed by Bloomberg correctly forecast the 10-basis point reduction of the key interest rate. The remainder predicted the central bank would leave it unchanged at 0.15 percent. Officials lowered the deposit rate to minus 0.2 percent, also the least on record. ECB President Mario Draghi is due to hold a press conference at 2:30 p.m. in Frankfurt to explain the decision.
“The rate cuts have clearly taken the market by surprise judging by the immediate euro reaction,” said Peter Kinsella, a senior currency strategist at Commerzbank AG in London. “It’s clear the ECB wants a weaker euro and they are prepared to do what is necessary to get it.”
The euro fell 0.9 percent to $1.3019 as of 1:12 p.m. London time after sliding to $1.3015, the lowest since July 15, 2013. It declined 0.7 percent to 136.90 yen. The Japanese currency weakened 0.3 percent to 105.15 per dollar.
Kinsella said Commerzbank forecasts the euro will fall to $1.25 by end of March 2015.
Draghi said on Aug. 22 that bets on price increases “exhibited significant declines,” and policy makers are “ready to adjust our policy stance further.” That sparked speculation the central bank was considering further stimulus, including further asset purchases, a policy known as quantitative easing.
“It seems like the ECB squeezed out the last bit of conventional monetary policy as they could still not agree on QE measures,” said Thomas Kressin, the Munich-based head of European foreign-exchange at Pacific Investment Management Co. “The euro is falling as the market might have seen this as a sign of more to come if the data is not getting better.”
Source: Bloomberg