The Euro tumbled against most of its major peers on Wednesday after the International Monetary Fund piled pressure onto the European Central Bank ahead of tomorrow’s monetary policy meeting.
IMF officials said that the ECB should cut interest rates further from the already record low of 0.5% and inject more liquidity into the Eurozone’s banking system via the ECB’s Long-term refinancing operations.
Concerns were already building ahead of Thursday’s policy meeting that the single currency region is facing the prospect of deflation. The rate of inflation in the Eurozone has been stuck in what the ECB deems its danger zone for the past two months. The ECB target for close to 2% inflation has instead seen it fall below 1% for the past five months.
“The ECB must be sure that policies are equal to the tasks of reversing the downward drift in inflation and forestalling the risk of a slide into deflation. It should thus consider further cuts in the policy rate and, more importantly, look for ways to substantially increase its balance sheet, be it through targeted LTROs or quantitative easing”, said the head of the IMF’s European Department in a blog post.
Economists increased their bets that the ECB will announce new monetary stimulus tomorrow as a result. The positive data released earlier in the session was widely ignored as the ECB announcement draws nearer.
The EUR/GBP rate fell to 0.82 close to a one-week low and the EUR/USD dropped to 1.37 despite the publication of disappointing US data.
Euro (EUR) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,
,US Dollar,1.3723 ,
Euro,,British Pound,0.8207 ,
Euro,,Australian Dollar,1.5305 ,
Euro,,Canadian Dollar,1.5201 ,
[/table]
