European Central Bank cuts interest rate by 0.25%

In a scheduled announcement, the European Central Bank has cut their interest rate by 0.25% to set a new historic low of 1.00%. It was widely anticipated interest rates would be cut, as the central bank attempts to boost the eurozone economies in the face of the global economic slowdown. Indeed, recent forecasts released by the European Commission on Monday revealed that the region’s economy would shrink by 4% this year, more than double the contraction projected in January, and a further contraction of 0.1% in 2010.

We await any comment regarding quantitative easing within the eurozone as the President of the European Central Bank, Jean-Claude Trichet, is scheduled to make a speech shortly. Trichet has already indicated that the central bank could resort to purchasing assets with newly created money – similar to what is being seen in the UK and US at present. With falling interest rates and with quantitative easing on the cards, Caxton FX is expecting that the single currency may come under increased selling pressure in the coming months.