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Eurozone surprise interest rate cut hits the euro

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Eurozone surprise interest rate cut hits the euro
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The euro struggled at the end of the week as the European Central Bank’s surprise interest rate cut sent the single currency plunging.

At the same time the dollar rose thanks to US job growth. That raised expectations the Federal Reserve could start scaling back its massive stimulus as soon as December, thereby making the dollar more appealing to investors.

At the start of the week, one euro bought you just under $1.35. Then came the double whammy of the ECB’s move and the US jobs number, dragging it down to as low as just over $1.33.

Analysts said the European Central Bank’s decision to cut rates sooner than markets had anticipated – together with the ratings downgrade of France – showed there are lingering concerns over the eurozone’s economic growth, as it recovers from the sovereign debt crisis.

The feeling in the markets is that the euro will grind lower in the near term.

None of this helped European share prices.

They finished the day down from the five-year highs hit in the previous session.

France was the region’s worst performer on that ratings downgrade. The CAC 40 lost almost 0.5 percent.

However strategists said investors were starting to focus more on the underlying improving global economy rather than the Fed’s future monetary policy.

Many see increasing signs of a global recovery that will support equities in the longer term.

“We believe 2014 will see an increase in profitability across the region and this should translate into positive performance for European equity investors,” said Andrew Arbuthnott, head of large-cap European equities at Pioneer Investments.

With Reuters