The euro is plunging following a highly anticipated European Central Bank rate cut.
There are two reasons for this, and the dominant one will be incredibly important to markets moving forward:
- First, looser monetary policy generally coincides with a weaker currency. (Expansionary policy increases the supply of money being used in the economy, lowering value of currency.)
- Then again, a drop in the value of the euro could indicate that investors were unimpressed by the ECB’s latest attempts to bolster the European economy, and that they were expecting more.
Either way, Europe benefits from a cheaper euro in the long-term because that encourages exports and diminishes the value of countries’ debts in other currencies.
UPDATE: Here’s a look at the euro versus the dollar in the last few minutes: