Bloomberg News

Euro Weakens Versus Dollar as ECB Cuts Benchmark, Deposit Rates

July 05, 2012

The euro fell against the dollar and the yen after the European Central Bank cut its key interest rate by 25 basis points to a record of 0.75 percent and reduced its deposit rate to zero for the first time.

The 17-nation shared currency weakened versus 14 of its 16 major peers. While the median forecast of 64 analysts in a Bloomberg News survey was for a 25 basis-point cut, 10 forecast no change and five predicted a reduction to 0.5 percent. ECB President Mario Draghi will hold a press conference at 2.30 p.m. in Frankfurt to explain the decision. The pound erased a decline against the dollar after the Bank of England extended its bond- purchase program and the Australian dollar advanced after China cut benchmark interest rates.

“The market has been expecting a cut of at least 25 basis points,” Michael Derks, chief strategist at FxPro Financial Services Ltd. in London, said before the announcement. “The economic diagnosis has worsened in the euro area and a rate cut is pretty much a fait accompli.”

The euro fell 0.6 percent to $1.2454 as of 12:52 p.m. in London. The common currency tumbled 0.8 percent to 99.28 yen, The dollar was 0.2 percent weaker at 79.69 yen.

The pound was little changed at $1.5584 after dropping as much as 0.2 percent. Australia’s dollar jumped 0.4 percent to $1.0313.

The euro gained 1 percent against the dollar and 1.6 percent versus the yen on June 6, when ECB policy makers held the main rate at 1 percent.

The ECB last cut borrowing costs in December, when it reduced its benchmark rate by 25 points to 1 percent following a similar drop at the November meeting.

To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net; Neal Armstrong in London at narmstrong8@bloomberg.net.

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net;


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