Currency Note Euro

Possibility of further interest rate cuts undermines the euro

By Smart Currency January 10th, 2014

Eurozone data has been mixed this week and failed to have a decisive impact on the performance of the single currency before Thursday. Tuesday’s German unemployment data was better than expected and revealed a reduction of 15,000 in the number of people not in employment. This positive influence was counterbalanced by the slightly lower-than-expected Eurozone Consumer Price Index data which showed that whilst confidence is justifiably building in Europe’s largest economy, the Eurozone as a whole is not out of the woods yet as regards the possibility of deflation and further interest rate cuts. Fears of this nature influenced European Central Bank (ECB) President Mario Draghi’s statement yesterday in which he re-asserted the Central Bank’s intention to keep interest rates at record lows for an extended period of time. This had a negative effect on the eighteen-nation currency as Draghi outlined that the ECB is still willing to cut interest rates further if conditions worsen, reducing investor confidence in the single currency. The ECB could also use its Outright Monetary Transactions Policy (OMT) to aid the Eurozone economy. The policy was introduced in 2012, but has not yet been activated. Today the German Constitutional Court is ruling on the legality of the mechanism and the outcome of the decision may have an impact on euro performance as we come to the end of the week. Call your trader now to take stock of euro movements.