Euro Holds Gains Following Smaller-Than-Expected ECB Cut

(CEP News) - A smaller-than-expected ECB interest rate cut on Thursday morning has helped the euro move higher, but currency strategists are mixed as to whether the currency will see further gains in the short term.
EUR/USD shot to session highs at 1.3493 USD following the interest rate decision and just ahead of ECB President Jean-Claude Trichet's monthly press conference. However, the gains were relatively short-lived, as markets dragged the cross back below 1.34 USD.

Euro Gains Despite European Central Bank (ECB) Rate Cut - Why?

The euro ended Thursday on a mixed note, as the currency surged against the Japanese yen, US dollar, and Swiss franc but slipped against the ultra strong commodity dollars.

The moves came after the European Central Bank (ECB) cut rates by 25 basis points to 1.25 percent, which served as a positive surprise since a Bloomberg News poll had listed a forecast for a 50 basis point reduction. However, given the content of ECB President Jean-Claude Trichet’s post-meeting press conference, there is some bearish potential for the euro he not only left the door open to further rate cuts, but also hinted that quantitative easing may be discussed during their next meeting.

ECB’s cautious cut strengthens euro

The European Central Bank cut interest rates on Thursday by a smaller than expected quarter percentage point, triggering a sharp rise in the euro.
The interest rate cut, from 1.5 per cent to 1.25 per cent, took official borrowing costs in continental Europe to their lowest since the second world war. However, the central bank saved some of its firepower for a package of anti-recession measures to be announced next month.