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Euro to Weaken as ECB Moves Toward Rate Cuts: Analysts’ Comments

Analysts discuss the European Central Bank’s decision to leave its benchmark interest rate unchanged at 1.5 percent.

ECB President Jean-Claude Trichet said the ECB will resume covered-bond purchases and reintroduce year-long loans for banks to counter the debt crisis.

The comments were made in telephone interviews and in client notes today:

Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen:

“It’s not a complete surprise, although some people were looking for a possible cut.”

“Having hiked twice this year already, it’s a bit difficult for them to start easing so soon.

“Eventually they will cut rates; probably late this year and then in the spring of next year.

“We’re negative on the euro and see it going down to about $1.20 in 12 months.”

John Hardy, head of foreign-exchange strategy at Saxo Bank A/S in London:

“It was always unlikely that they’d move lower given that their last hike was so recent.

“Trichet is ‘Mr. Vigilance,’ so reversing policy so soon would be like admitting he was wrong.

“The market still has a couple of cuts priced in over the next 12 months and I’d concur with that.

“It’ll be interesting to see the extent of the ECB’s covered bond purchases and whether they move to de facto QE.”

Julian Callow, chief European economist at Barclays Capital in London:

“We still expect the ECB to ease policy given the impending recession risks in the euro area, but we must reckon with that adjustment coming later rather than being more pre-emptive.”

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