The Euro dropped against the Dollar on Thursday after European Central Bank President Jean-Claude Trichet said euro zone growth risks are to the downside, paving the way for lower interest rates this year. The Euro is now on track for its biggest weekly decline against the Dollar in two-and-a-half years. It was pressured from early in the session as the ECB left benchmark borrowing costs unchanged at 4% and Trichet, at a post-meeting press conference, also dropped his threat to act ahead of possible rising prices. The Euro has come under pressure in the past couple of sessions amid growing signs the economy in the 15-member bloc looks weak. In another rate-setting meeting on Thursday, the Bank of England cut borrowing costs by 25bp at 5.25%, citing a weak economic outlook.
At yesterday close, EurUsd was down 0.94% at 1.4476 after dropping as low as 1.4440. It has lost 2.11% this week, heading for its biggest weekly fall since June 2006. UsdJpy rose 0.87% to 107.32, mostly on technical trading. EurJpy was little changed at 155.36 though it had traded between a low of 154.06 and a high of 156.19. Cable (GbpUsd) fell to a two-week low against the greenback at 1.9422 as the Bank of England cut rates by a 25bp to 5.25%, as expected, in a bid to head off a sharp consumer-led slowdown, and signaled further gradual policy easing ahead.
In contrast to the United States, Canada and Britain, the ECB has not yet gone down the path of cutting interest rates because of price pressures in the 15 countries using the Euro. In January, euro-zone inflation hit a record high. Recent signs of faltering growth in Spain, Italy and elsewhere in the bloc, however, suggest the ECB may soon have to switch its attention to supporting the euro zone economy. The US Federal Reserve has already slashed rates by 225bp and is seen cutting rates at least another 75bp by the end of the year.
Going into the weekend, investors may be looking to any currency-related comments from the meeting of Group of Seven finance ministers and Central bankers in Tokyo.