As European Central Bank President Mario Draghi cuts interest rates put in place by his predecessor, Jean-Claude Trichet, analysts are taking note—and cutting their forecasts for euro value, saying the higher interest rates now on their way out have been one of the main supports on which the currency’s value rested.
Bloomberg reported Monday that Draghi’s move to reverse Trichet’s interest rates has led to analysts revising their estimates for the euro downward—at a fast pace. Draghi cut interest rates on Nov. 3, and since then, analysts have cut their year-end 2012 euro estimates from $1.40 to $1.32. The euro has lost ground against every major currency, with the exception of the Swiss franc, since the rate cut, when under Trichet it had gained against 12 out of 16.
Investors have been dropping euro-denominated assets like so many hot potatoes during the ongoing struggle to contain the currency bloc’s debt problems. While optimists see opportunity, feeling that it can’t get much worse, pessimists are still crowding the exits and pointing to a growth forecast of 0.5% for the eurozone—not a healthy economic sign. The U.S., in comparison, is forecast to grow 2.19% in 2012.