Euro Slides on Possible ECB Rate Cut

  on April 18 2013 8:19 AM
Euro Symbol building 2
The euro currency sign is seen in front of the European Central Bank headquarters in Frankfurt. Reuters

The euro traded at $1.3053 on Thursday morning after falling more than one percent on Wednesday because of rumors that the European Central Bank was planning to cut interest rates in May.

According to Reuters, an ECB Governing Council member, Jens Weidmann, made statements indicating that if economic conditions in the eurozone worsen, the bank may cut rates again. Weidmann's insights were a massive blow to the common currency, and European shares also fell to their lowest this year.

Despite Weidmann's comments, many believe that a May rate cut is unlikely unless the region's economic data takes a nosedive. Although lower interest rates are possible in the coming months, the odds are better for a cut in June or July.

Many believe that data over the summer months will be a big indicator of how far off the eurozone's recovery is and if the region underperforms, the ECB may be forced to ease further.

Thursday is the first day of talks for the Group of 20 advanced and emerging economies in Washington, where finance ministers and central bank officials will discuss monetary policy.

The G20 agenda is likely to include a discussion of the financial situation in the eurozone, specifically the botched Cypriot bailout, and a renewal of February's promises to avoid competitive devaluation.

Moving forward, investors will be watching Cyprus closely as the country's parliament has scheduled an unexpected vote to determine whether or not to accept the 23 billion euro bailout package. The country's parliament unanimously voted to turn down the initial aid terms in March, sending a message of resistance to the rest of Europe.

Now, plans to vote on the revised package have fueled concern that the tiny island nation may be the first to leave the common currency.

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