Euro in freefall amid speculations of rate cuts by ECB |
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Tue, 21 Jun 2005 17:35
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Amid speculations that the European Central Bank will affect an interest rate cut, the euro fell to a nine-month low against the dollar on Tuesday and continues to weaken against Sterling.
This is the latest blow to the single currency after European Union leaders' failed to adopt a seven-year budget and France and the Netherlands rejected the EU constitution. Also Sweden's central bank lowered interest rates way below the expected levels causing European 10-year bonds to surge.
Commenting on this, Orlando Green, a fixed-income strategist in London at Calyon, the investment- banking unit of Credit Agricole SA, said, " The surprise rate cut by the Riksbank has increased speculation the ECB will follow suit. The initial reaction is going to be good for bonds all round."
| The Swedish bank cut the rates as slow growth in the euro region is badly hitting its exports. Stephen Roach, chief global economist at Morgan Stanley in New York, said, "The drum-beat will get louder for rate cuts in the core of Europe. Policy makers need to get on board in dealing with weakening growth."
The euro stood at $1.2000 per dollar prompting Ray Farris, director of Asian forex strategy at Credit Suisse First Boston in Singapore to comment, "The relative direction of monetary policy in the U.S. and Europe is in favor of the dollar, and we expect that trend to continue."
But the ECB said that it would resist the rate cuts, Liebscher, governor of Austria's central bank, said, "We have experienced pressure from politicians since the beginning of the currency union. If there's a little more pressure now, then I see that as the search for a scapegoat for economic problems. We find the current interest rate level to be appropriate based on the data. We have no bias."
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