The highlight of the week was the euro having the rug pulled from underneath it yesterday, dropping down to July 2013-lows against the US dollar following an unexpected move from the European Central Bank (ECB) to cut all three of their main interest rates by 0.1%. This included dropping its main refinancing rate to a historic low of 0.05%, whilst lowering the deposit rate to -0.2%! In the press conference following the decision, policy-makers also announced that the central bank would introduce additional stimulus measures in the form of asset-backed securities purchases.
The ECB caught the market by surprise yesterday, but highlights how conditions have continued to deteriorate across the 18-nation bloc, with both inflation and employment levels coming in below even the most pessimistic expectations from the start of 2014.
The ongoing crisis in Ukraine also continues to weigh on the euro, diminishing confidence from the market for businesses as well as consumers. Quarterly growth figures released today could provide some lifeline, but the reality is that we could well see further euro deterioration over coming weeks and months.