ECB Considers Lowering Deposit Rate

   on May 03 2013 8:09 AM
ECB Draghi 2012 2
ECB President Mario Draghi. Reuters

The euro settled at $1.31 on Friday morning after taking a hit on Thursday following the European Central Bank's monthly meeting. The bank lowered interest rates by 0.25 percent on Thursday, causing the euro to waver, however it was Mario Draghi's press conference following the meeting that put the most pressure on the common currency.

The euro fell nearly one percent on Thursday after Draghi announced the rate cut and the possibility of further easing. According to Bloomberg, Draghi said the bank may consider reducing the deposit rate, something which the ECB has never considered before.

Draghi's comments indicated that he and the finance ministers believe the central bank is prepared for the fallout of negative deposit rates. If the ECB decides to take the deposit rate below zero, it could put downward pressure on the euro as banks would be encouraged to flood the financial system with euros.

Eurozone Manufacturing PMI also put pressure on the euro on Thursday after readings came in at 46.7 for April, down from 46.8 in March. The region has scored below 50, the number which indicates growth, for 21 consecutive months with no signs of improvement.

Even more concerning for the eurozone was Germany's reading, which showed that the region's largest economy's manufacturing activity fell for the second consecutive month. Since Germany has long been a large exporter, second only to China, the decline makes a big statement about how rapidly the eurozone's financial crisis is spreading.

Looking forward, investors will be waiting to see the eurozone's composite PMI, due out on Monday, for further clues about the region's recovery.

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