Euro Rate Today - EUR to Dollar Falls to 4 month Low; Sterling Best Rate in 18 Months

June 5, 2014 - Written by James Fuller

STORY LINK Euro Rate Today - EUR to Dollar Falls to 4 month Low; Sterling Best Rate in 18 Months

Euro Rate Today - The Euro exchange rate (EUR) falls to four-month low against the US Dollar (USD) as ECB introduces negative rate - The Euro declined to a four-month low against the US Dollar on Thursday after the European Central Bank cut interest rates to a new record low, introduced negative rates and announced a fresh round of refinancing operations. In a bid to stave off the threat of deflation and a stalling of the Eurozone economy the ECB cut its benchmark interest rate from 0.25% to a new record low of 0.15%.

The Bank also took the historic step of introducing negative deposit rates, which now mean that commercial banks will now have to pay the ECB to deposit money with the Central Bank. It is hoped that the measure encourage banks to lend to businesses and in turn lead to economic growth in the Eurozone.

"The consequences are unpredictable - how will banks respond to this very unusual move? That the ECB chose to do this in the face of that uncertainty is a very telling indication of its concerns about the weakness of Eurozone recovery and the danger of deflation,” said Andrew Walker, economics correspondent at the BBC.

The Bank also announced that it will be conducting a series of targeted longer term refinancing operations otherwise known as TLTROs. The ECB will provide up to €400 billion in total and will encourage banks to lend to small businesses.

The ECB stopped short of large-scale asset purchases known as quantitative easing for now, but ECB President Mario Draghi said more action would come if necessary.

"If required, we will act swiftly with further monetary policy easing. The Governing Council is unanimous in its commitment to using also unconventional instruments within its mandate should it become necessary to further address risks of too prolonged a period of low inflation," said Draghi.

In the press conference that followed the rate decision Draghi said that interest rates will remain lower for a prolonged period.

After being asked how long he thinks it will take for the measures to have an impact Draghi said; “Most likely we will see immediate effects in the money markets and we will see delayed effects in the real economy attributable to this programme... It will probably take three or four quarters,”

He wasn’t wrong about the money markets reaction. Following the announcement the Euro fell sharply against all of its peers.

The US Dollar was also buoyed by the release of a report which showed that consumer sentiment increased for the first time in five weeks as US citizens grew more optimistic about the strength of the US economy.

Bloomberg’s consumer comfort index rose from 33.3 to 35.1.

Investors widely shrugged off data released by the US Department of Labour showed that the number of US citizens claiming initial jobless benefits in the week ending on 31st of May increased more than forecast to 8,000, taking the total to 312,000.

Economists had been expecting a slight rise of 6,000 to bring the total to 310,000.

The Euro to Pound exchange rate was also softer after the Bank of England voted to keep interest rates unchanged at the record low level of 0.5%. The Bank also left its quantitative easing programme unchanged at £375 billion.

The decision came after data showed that U.K. house prices rose by 3.9% last month, exceeding expectations for a 0.7% gain, after a 0.3% fall in April, whose figure was revised from a previously estimated 0.2% slip.

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TAGS: American Dollar Forecasts Daily Currency Updates Euro Forecasts