ECB Cuts 75 Basis Points, More Than Expected

ECB Minimum Bid Rate Actual 2.50%, Expected 2.75%, Previous 3.25%

Release Explanation: This is the Interbank overnight lending rate. It sets the tone for mortgages, commercial loans, and all economic lending criteria. An increase in Interest Rate will have the effect of slowing economic growth. A decrease in Interest Rate is used by a Central Bank to stimulate economic.

Trade Desk Thoughts: The ECB has cut the Minimum Bid Rate by 75 basis points, down to 2.50%. This is a surprise move, since a whopping majority of analysts had forecast the bank would reduce the interest rate by 50 basis points. This is the largest rate cut since the ECB had first started to function as a central bank, since the usual rate cut in the easing cycle was 50 basis points.

The market will now shift its focus to Mr. Trichet's press conference, which starts approximately 45 minutes after the interest rate decision. It is expected that the Chairman of the ECB will say that risks to the downside have increased further due to the credit crisis, while inflation expectations diminished during the last period. Most analysts are saying that the Euro-zone is already in a recession, and the economy will recover toward the end of 2009, if not later. At the last meeting, the ECB shifted its focus from targeting inflation to assure growth, something that has been seen in the euro's valuation. During his speech, Mr. Trichet is also expected to present the downgrade for the ECB staff's projections over the coming quarters.

Forex Technical Reaction: Despite the larger than expected rate cut, the euro failed to spark a strong reaction. Today, the euro fell 90 pips and is now trading near TheLFB S1, despite that earlier the pair was trading somewhat lower.

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