Euro Ends Day Modestly Lower as ECB Cuts Rates to Record Low of 2.00%, Leaves Door Open to Further Reductions

Euro Ends Day Modestly Lower as ECB Cuts Rates to Record Low of 2.00%, Leaves Door Open to Further Reductions
Trading throughout the forex markets was particularly volatile on Thursday as risk appetite shifted wildly. Meanwhile, the European Central Bank’s 50 basis point rate cut to a record low of 2.00 percent exacerbated moves for the euro, as the 7:45 ET reduction initially sent the currency plummeting. ECB President Jean-Claude Trichet’s 8:30 ET press conference subsequently sparked even more volatility, though. While there is another policy meeting scheduled in 3 weeks, Mr. Trichet said that the next "important" one will be in March when they release new projections for growth and inflation, suggesting they have no plans to adjust interest rates next month. However, he refused to call 2 percent the lower limit for interest rates, leaving the door open to further reductions in coming months. In the longer-term, Mr. Trichet indicated that inflation rates may rise against during the second half of 2009, but that it wasn’t necessarily relevant to rates as the Euro-zone is likely to experience a severe slowdown as global economic weakness weighs on export demand.

Looking ahead to Friday, the Euro-zone’s trade balance is forecasted to reflect a deficit for the seventh straight month in November, and may even widen to -4.8 billion euros (seasonally adjusted) from -1.3 billion euros in October. Exports face especially large downside risks as slowing foreign growth limits demand for European goods. However, imports have been weaker as well, especially given the decline in energy costs, which could help to prevent the balance from plummeting more than anticipated. This isn't typically a major market-mover for the euro, barring significant deviations from forecasts, but is nevertheless worth watching as a measure of the health of the Euro-zone's economy.

Related Articles: Top Forex Trades for 2009, EUR/USD Forecast After the ECB Rate Decision



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