Market Overview

ECB Cuts Rates, Sends Euro Sliding

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The euro headed into the weekend on a low note after the European Central Bank surprised markets by cutting its main interest rate at its policy meeting on Thursday.

The common currency traded at $1.3407 at 5:30 GMT on Friday after slipping by around 0.8 percent on Thursday.

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Recent inflation data from the bloc sparked fears of widespread deflation and caused much speculation about whether or not the bank would act. Many feared that the steep drop in inflation could lead to a repeat of Japan's lost decade of inflation, or at very least, disrupt the region's fragile recovery. Although most thought the ECB would step in with further easing, the majority of investors were expecting the cut to come at December's meeting.

By cutting the bank's benchmark rate to 0.25 percent, ECB President Mario Draghi lived up to his reputation as one of the boldest ECB chiefs. Following the rate cut, Financial Times reported that Draghi warned that the eurozone could find itself in a “prolonged period of low inflation”. He also insisted that the bank still had plenty of options in mind to fight falling prices in the future if need be.

European markets soared following the news as investors welcomed the bank's decision, but not all of the ECB's members were on board. Jens Weidmann was among the small group of governing council members who voted to keep rates constant until the bank publishes its latest economic forecast. However, the bank's members did agree to continue fulfilling their promise to provide cheap loans to eurozone banks until the second half of 2015.

Posted-In: News Eurozone Commodities Forex Global Federal Reserve Pre-Market Outlook Markets Best of Benzinga

 

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