Interest and exchange rate forecast

Interest and exchange rate forecast

Turning Japanese?

Economic Analysis

08 November 2013

The European Central Bank cut its main interest rate to just 0.25%, from 0.5%. The main reason for this move is the sharp fall in inflation, which has edged the Eurozone closer towards deflation - a decline in prices. This unwelcome phenomenon has plagued Japan for the best part of two decades. A rate cut may help to nurture Europe's nascent recovery, but politicians still need to push through national reforms and rebalancing if the region is to return to prosperity. The ECB's action generated an immediate fall in the euro which will be welcomed by exporters in the struggling periphery economies. GBP/EUR is back above 1.20, and we think it will move higher over coming months.

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