ECB Rate Cut Could Boost Euro Value

 
on May 01 2013 9:25 AM
ECB EU IMF April 2013
International Monetary Fund (IMF) executive director Christine Lagarde, Eurogroup President Jeroen Dijsselbloem and European Economic and Monetary Affairs Commissioner Olli Rehn attend a news conference at the end of a Eurogroup meeting at the European Council building in Brussels, March 25, 2013. Reuters

With the European Central Bank's monthly meeting just a day away, the euro ticked up on rate cut expectations. The common currency neared a two week high on Wednesday and traded at $1.3191.

The euro has risen by about one percent since Jens Weidmann announced that a rate cut would be considered if economic data warranted it. Normally, speculation of a rate cut would put pressure on the currency, but in this case, many analysts say the weak eurozone economy has been more of a drag on the euro's value and a rate cut decision will be seen as a step toward growth.

According to the Wall Street Journal, economists are expecting the ECB to drop the interest rate to 0.5 percent from 0.75 percent. Should the ECB go through with the cut, it may be interpreted as a signal that the bank is shifting toward policies aimed at improving economic growth.

However, while the rate cut is likely, it isn't definite. Should the region's Finance Ministers decide against cutting rates, the euro could plummet. The bank has already brushed off calls to follow the example of other central banks like the Federal Reserve and drastically cut interest rates nearly to zero. Bank President Mario Draghi has been clear in saying that job growth and economic growth is not the responsibility of the bank.

However, elected officials in their respective countries around the eurozone have been hard pressed to lower the region's sky high unemployment rates. New figures out on Tuesday showed that the eurozone's overall unemployment rose to 12.1 percent in April.

In countries along the southern rim the figure is even higher, like in Spain where the first quarter unemployment rate came in at 27.2 percent, the highest jobless number the country has seen since dictator Francisco Franco died and the country transitioned to a democracy.

(c) 2013 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

 

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