Flash: EUR crashes on ECB cut

FXstreet.com (London) - Research teams at HSBC explained that the Euro will fall as ECB cuts rates.

Key Quotes:

“ECB cuts refi rate by 25bp, desposit rate unchanged”

“Exchange rate the likely target of unexpected decision to ease”.

“The ECB's surprise decision to lower interest rates will weaken the EUR,
and this most likely is exactly what the central bank wants”.

“Net exports have been the major driver of GDP growth over recent quarters, and the
rise in EUR was increasingly threatening this engine of growth. Meanwhile,
a lower EUR will also help push up inflation through higher import costs”.

“ The ECB will hope this double-whammy of the exchange rate effect on growth
and inflation will help curtail the deflation threat. As we noted in our
recent report "EUR strength demands a response", the Fed worries about
long-term interest rates and the BoE recognises short-term interest rates
have the greatest UK economic impact”.

“But the ECB's most potent economic tool to help growth and fight the deflation threat, especially with rates so close to zero, is the exchange rate”.

“Today's easing marks the first overt step in massaging the EUR lower. It certainly will not be the last”.