The Euro (EUR) to Pound (GBP) Sterling Exchange Rate weakened sharply on Thursday after the European Central Bank announced that it had cut interest rates to a new record low of 0.05% as the outlook for the Eurozone economy worsens.
Following the news of the interest rate cut the Euro tumbled by 0.80% against the Pound and declined to a 14-month low against the US Dollar. It also declined sharply against the Australian (AUD) and New Zealand Dollars (NZD).
With the Eurozone economy, experiencing record low inflation, high unemployment and a stagnating economy economist had been widely expecting that the bank would take some action to try to stimulate the region.
The ECB’s governing council voted to cut interest rates by 10 basis points. The benchmark rate is now at 0.05% and the deposit rate was put into negative territory of -0.2%.
The decision came after the latest data showed that the annual rate of Euro area inflation slowed to a five-year low 0.3% last month. The ECB targets an inflation rate of close to but just below 2%.
The ECB also announced that it had lowered its growth forecasts for the rest of 2014 and next year. It now forecasts that the Eurozone will see a growth rate of 0.9% this year, down from its previous guess of 1%. For 2015, it predicts growth of 1.6% from 1.7%.
In the press conference that followed the rate decision, Mr Draghi said that the Central Bank will begin to buy securitised loans and covered bonds next month to help encourage lending across the Eurozone.
Draghi said that the bank would buy broad portfolios of simple and transparent asset-backed securities and of Euro-denominated covered bonds from October, with full details of the new programmes to be given after the ECB’s next meeting on Oct. 2.
Mr Draghi also reiterated comments made in his Jackson Hole speech last month. He said that Eurozone members must continue to reform their economies.
The Pound advanced as the Bank of England left interest rates unchanged at 0.5%, a move that supported sentiment towards the currency.
‘The UK recovery is on track but there are still challenges up ahead. The Eurozone, our largest export market, is stagnant and official figures show that manufacturing activity is at its lowest level since June last year. We must act with caution and ensure the recovery is not put at risk with unnecessary interest rate increases,’ said David Kern, chief economist at the British Chambers of Commerce.
Against the US Dollar, the Euro fell to its lowest level in 14-months and looks set to fall even further before the end of the week as data out of the USA came in positively.
Against the Australian Dollar, the single currency went into freefall as investor’s flocked to the higher interest rate offered by the Oceanic nation.
UPDATE
The Euro to Pound Sterling exchange rate is currently trending in the region of 0.7948.
The Euro to US Dollar exchange rate is currently trending in the region of 1.2959.
The Euro has continued to struggle across the board on Friday as investors pull away in response to the European Central Bank’s cut interest rate and stimulus package initiative.
Despite having several upbeat economic data publications the Euro has been unable to claw back the losses from Thursdays surprise ECB loose monetary policy stance. German Industrial Production eclipsed the forecast figure of 0.6% showing growth of 2.5%. Eurozone Gross Domestic Product data fell in line with the forecast figures.
British data has been less desirable as the Bank of England Inflation estimate for the next 12 months showed an unwanted incline to 2.8%.
Friday’s US data is a mixed-bag in terms of results, but hasn’t seemed to affect the bullish behaviour of the US Dollar to any great extent. Unemployment Rate met with the forecast figure having fallen from 6.2% to 6.1%, but Change in Non-Farm Payrolls only reached 142,000 having been forecast to jump to 230,000. Average Weekly Hours All Employees equalled the previous figure of 34.5, but Change in Household Employment, Change in Private Payrolls, Labour Force Participation Rate, Two-Month Payroll Net Revision and Underemployment Rate all fell from their previous figures.
Euro Exchange Rates:
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,
,US Dollar,1.3027 ,
Euro,,British Pound,0.7929 ,
Euro,,Australian Dollar,1.3896 ,
Euro,,Canadian Dollar,1.4130 ,
[/table]
