The Euro has fallen sharply against most of its peers after the European Central Bank confirmed that it would be cutting interest rates. The Bank has cut its main interest rate to a record low of 0.75% and also reduced its deposit rate to zero in an effort to tackle the ongoing euro zone crisis.
Most observers had been expecting the interest rate cut but were taken by surprise by the deposit rate cut. The rate cut was implemented in an effort to encourage the regions banks to lend to one another.
ECB President Mario Draghi said the euro zone economy would recover only gradually and continues to be threatened by the debt problems of several of the bloc’s members and the banks’ unwillingness to lend.
“The risks surrounding the economic outlook for the euro area continue to be on the downside,” Draghi told a news conference. “Beyond the short term, we expect the euro area economy to recover gradually, although with momentum dampened by a number of factors. In particular, tensions in some euro area sovereign debt markets and their impact on credit conditions.”
In the UK the Bank of England announced that it would-be pumping an extra £50billion into the country’s flagging economy. The money is to be introduced over a four month period under the third stage of the banks Quantitative easing programme. The Bank also said that it is leaving UK interest rates at the record low of 0.5%. The interest rate hasn’t changed for more than three years in a bid to encourage spending.
“It’s a good decision and they need to do it because the recovery is taking so long,” said George Buckleyan economist at Deutsche Bank AG in London. “This is as much a decision to offset the future downside risks from the euro area as it is to try and support the rather flagging recovery.”
The BOE claimed that without further QE there was a possibility that inflation would fall below its target of 2%. Sterling managed to cut its losses against the Dollar and rose to a new five week high against the Euro after the markets expressed their relief that the BOE had resisted the urge to inject more than £50 billion. There had been rumours that the Bank was considering a figure of £75 billion.
Sterling rose to $1.5601 from around $1.5570 before the BoE announcement, still below this week’s high of $1.5723. The Euro suffered heavy losses against most of its peers. Currently the Euro is trading in the region of 0.797 against the Pound and 1.236 against the US Dollar a drop of 1.21%.
The Pound to Euro exchange rate is currently trading at 1.254
The Pound to US Dollar exchange rate is currently trading at 1.551
The Euro to Australian Dollar exchange rate is currently trading at 1.206
The Euro to US Dollar exchange rate is currently trading at 1.236
The Euro to Pound exchange rate is currently trading at 0.797
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