Rate cut rumours lead to euro drop
The euro has fallen below $1.20 for the first time in ten months, amid speculation that the European Central Bank (ECB) may be preparing to cut interest rates.
The euro fell to below $1.20 on Friday, as analysts stated that the ECB may slash rates in order to boost the eurozone’s flagging economies.
It comes amid criticism that the ECB is too concerned with fighting inflation, a stance that its President Jean-Claude Trichet reiterated on Thursday.
Eurozone rates have been held at two per cent for two years now, a stark contrast to the changes in the UK and America.
However, pressure for a cut is rising among member states, with politicians in Germany and Italy questioning the wisdom of joining the eurozone because of its continued sluggish growth.
Analysts at investment bank SG has predicted that the ECB will cut the rate to 1.5 per cent by the end of 2005.
Industrial output in France is slowing, while Italy is facing the possibility of recession, and other European economies are expected to shrink this year.
The eurozone is expected to grow by just 1.2 per cent this year, after expanding 1.7 per cent last year.
