Eurozone rate cut + Euro plunges: “Too little, and far too late!"

(Watch the press LIVE conference here)

The 0.25% rate cut announced by the European Central Bank today has been branded as being too late by Neil Williams, Chief Economist at Hermes Fund Managers:

"Too little, and far too late!

"The euro-zone may be pausing from its fifteen-month recession, but there are reasons to be cautious still on the macro outlook. Admittedly, Q2’s 0.3%qoq lift from technical, GDP recession - the first rise since summer 2011- suggested the worst may be over, with encouragingly the ‘core two’, Germany and France showing their first in-tandem GDP rises for almost a year.

"A continuation of this would justify the past year’s convergence of government bond spreads back toward pre-crisis levels, and allay our fears that the euro-zone crisis will enter its second, more critical phase where the macro strains of the periphery increasingly ware on the core countries trying to foot the bill.

"Yet, with financial markets overly sensitised to US stimulus withdrawal -  and not the un-fixed euro - rather than a still-unfixed euro-zone, they are still worrying about the wrong thing.

"Draghi’s pledge last year to “do whatever it takes” may continue to cap funding costs (a symptom), but will do little to address the underlying problem: disparate competitiveness across a monetary union with insufficient economic union. We doubt any sudden volte-face from Germany on fiscal/banking union.

"We are more concerned about Spain’s dilemma: where fiscal inertia means funding strains; yet, approaching 60% male youth unemployment, any meaningful reform risks social unrest."

Euro plunges as ECB cuts rate to record low  

Andy Scott at HiFX says:

"The euro fell by over one per cent against the US dollar and the pound Thursday following the European Central Bank’s decision to cut interest rates by a quarter of a per cent to a record low of 0.25%. Sterling traded above 1.20 against the euro for the first time since January.

"The decision to cut was only forecast by a few of the major banks with most waiting to see what Draghi says in the press conference still to come, looking for a signal of a December rate cut; hence the sharp fall in the euro.
“The central bank couldn’t really ignore the slump in inflation we’ve seen this year from around 2% at the beginning of this year to just 0.7% this month. When you combine that with an increase in unemployment to a record high and only a slither of growth even in the stronger eurozone countries there was clearly a case to take aim at the risk of deflation.
“When Draghi speaks at the press conference shortly we wouldn’t be surprised to hear comments aimed at providing further reassurance that the ECB stand ready to prevent further drops in the inflation rate which could weaken the euro further.”