As expected, Mario Draghi has just confirmed that ECB interest rates will be cut from 0.75% to 0.5%. As a result of poor economic growth, lingering recession, record high unemployment rates and recent poor inflation figures, the ECB has finally decided that an interest rate cut is necessary in order to help encourage growth in Europe. Whilst the rate cut had been expected by markets today, it remains surprising how long it has actually taken for such a decision to come about, especially given the horrendous condition of numerous economies throughout the Euro Zone.
Volatility increased significantly in the run up to the interest rate decision and remained high post data release. Immediately following the decision markets began to spike, most notably EUR/USD plummeted to 1.3115 and then rocketed back up to 1.3184 in the space of one minute. Similarly GBP/EUR dropped to 1.1789 before rallying back to 1.1813 in just minutes.
Soon after this ECB president Mario Draghi chaired a press conference regarding the ECB’s monetary policy, in which Mr Draghi gave further details as to why interest rates had been cut. It was also disclosed that the ECB would consider taking interest rates to below zero “with an open mind” which has unsurprisingly led to a further weakening of the euro right across the board. GBP/EUR is now trading at 1.1876, whilst EUR/USD has fallen to 1.3063.