2 weeks ago

Euro Sinks as ECB Moves to Counter Slowdown

Investing.com - The euro fell to a three-week low against the dollar on Thursday after the European Central Bank cut

Investing.com - The euro fell to a three-week low against the dollar on Thursday after the European Central Bank cut its growth forecast for the euro zone, unveiled a new round of low-cost loans to banks and pushed back the timeline for what would be its first interest rate hike in nearly a decade.

EUR/USD was down 0.61% at 1.1236 by 09:25 AM ET (14:25 GMT), the weakest level since Feb. 15, having extended its losses as President Mario Draghi explained the thinking behind the bank's actions.

"The weakening in economic data points to a sizeable moderation in the pace of the economic expansion that will extend into the current year," Draghi told a press conference. "The persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets appears to be leaving marks on economic sentiment."

The ECB will begin a new series of quarterly targeted longer-term refinancing operations, known as TLTROs, in September 2019. They'll run through March 2021, each with a maturity of two years.

They will be indexed to the refinancing rate, meaning that their cost will go up if the ECB does hike rates next year.

Draghi said that the new policy measures will help to ensure that bank lending conditions remain favorable.

In a regular update, the bank cut its forecast for Eurozone GDP growth in 2019 to 1.1%, from 1.7% in December, and said it now expects growth of 1.6% in 2020, down from 1.7%. The forecast for 2021 remains unchanged at 1.5%.

Draghi said this year’s growth forecast had been revised down “quite significantly” because the euro zone "is in a period of continued weakness and pervasive uncertainty."

The ECB also slashed its inflation forecasts, to 1.2% this year, down from 1.8% in December, and to 1.5% in 2020, down from 1.6%. For 2021, it sees inflation at 1.6%. If that turns out right, it would mean that the ECB had undershot its inflation target for nine years in a row, Nick Kounis, head of financial market research at ABN Amro, said via .

The euro could fall to $1.10 by the end of the month, according to analysts at ABN Amro.

The bank said "most of the negative news is in the euro" and expects it will end Q1 and Q2 at $1.10 where it will "bottom out."

The ECB left its main refinancing rate, which determines the cost of credit in the economy, on hold as expected.