The decision by the European Central Bank to cut its main refinancing rate by 50 basis points to an historical low of 2% on January 15 came as no surprise to the foreign exchange market. Nor did the slight weakening of the euro as a result.
The general perception that the ECB remains stuck behind the curve made it almost inevitable that whatever central bank president Jean-Claude Trichet and his colleagues decided to do, it would result in some kind of sell-off in the euro. A failure to move would have been taken as a sign that the ECB was totally clueless, while a bigger cut would have been taken as a tacit admission that the central bank was, at best, misguided in its earlier assertions about the state of the eurozone’s economy.
Struggling to catch up
Holger Schmieding, Bank of America’s chief economist, Europe, was critical in...
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