Euro Hit Hard by ECB Decision

The Euro fell hard after the European Central Bank announced yesterday that it would lower its benchmark rate by 0.25% to 0.5%. While some analysts had expected the ECB would hold off on a rate cut this time around, the consensus opinion was that the rate cut was long overdue. Mario Draghi, the head of the ECB, also said that the ECB is technically ready and would be willing to consider a negative deposit rate in the future, meaning banks would earn no income for their overnight deposits and would be forced instead to lend in order to earn any return.

Following the announcement the EUR/USD pair fell to $1.3036, before recovering slightly to $1.3062, still a 0.87% loss. Analysts believe that the Euro could see further weakening as a result, likely to the $1.2920 area. Analysts say that the prospects of additional easing from the U.S. Federal Reserve are likely to limit the potential fall for the common currency, however. On Wednesday, the Fed announced its intent to keep its current policy unchanged but said that it would take further steps if needed. Full employment is one of the Fed’s two mandates, and the U.S. Labor Department will later today announce April’s private sector hiring data; should the number of new jobs fail to meet expectations it would likely put the dollar under additional pressure.