US Dollar Climbs as Euro Drops Low on ECB

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US Dollar Climbs as Euro Drops Low on ECB

On Thursday, stock markets rose while the euro dropped after unexpected cuts were made on the low interest rates by the European Central Bank, saying that it would start purchasing bonds and loans next month to prop up the struggling economy of the continent.

ECB, which is being faced with additional signs for deterioration in the economic prospects of the euro zone, cut its interest rates that were already low by 10 points, pushing the deposit rate into a negative zone.

According to Reuters, the economy of the euro zone flatlined during the second quarter with business confidence being affected by the crisis in Ukraine.

The benchmark index of the European shares jumped 1% to the highest level from 2008 and the S&P and 500 and the Dow reached record highs on Wall Street.

The euro dropped to a low, hitting $1.2957 against the dollar and breaking below the $1.30 technical resistance. Even though the euro pared losses trading at $1.2971, it was off 1.4%.

New York based, BNP Paribas interest rate strategist, Aaron Kohli said, “The fact that the ECB is taking aggressive action to tackle its own maladies is likely to help risk markets in the US such as equities and hurt bond markets.”

As reported by Bloomberg, senior currency strategist, Peter Kinsella said, “The rate cuts have clearly taken the market by surprise, judging by the immediate euro reaction. It’s clear the ECB wants a weaker euro and they are prepared to do what is necessary to get it.”

The euro has declined 2.1% the past month, and is the worst performer among the currencies of the 10-developed nations. The yen was down 1% while the dollar rose 1.7%.

Wall Street equities, supported by the economic data of the US, showed the increased improvement in the largest economy in the world. The prices for US government bond fell.

The krona rose 0.2 percent to 9.1954 per euro and was slightly unchanged at 7.005 per dollar.

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To contact the reporter of this story; Jonathan Millet at john@forexminute.com