Many economists are reaching the view that eurozone growth has slowed to the point where the European Central Bank will have to cut interest rates or risk stunting economic growth.
Within the space of one week, the outlook for the eurozone has worsened significantly,” said Carsten Brzeski at ING Capital Markets. Sound economic fundamentals are melting away.”
Recent eurozone data have been disappointing, with German business sentiment, measured by the Ifo institute, in April recording its biggest monthly fall since September 2001, while eurozone purchasing managers’ indexes have also fallen.
The European Central Bank has so far maintained a hawkish stance on interest rates.
As the Federal Reserve has slashed its main interest rate by 3.25 percentage points to 2 per cent since the start of the market turmoil last summer, and the Bank of England cut its main lending rate by 0.75 per cent to 5 per cent, the ECB has kept its official interest rate on hold at 4 per cent.
The diverging interest rate paths between the three central banks have given investors a reason to keep buying the euro, pushing it nearly 70 per cent higher against the dollar since 2001 and up almost 30 per cent against the pound.
Last month the euro reached an all-time high of $1.6018 against the dollar and a record high of £0.8097 against the pound. But it has since fallen 3.6 per cent, on Wednesday hitting $1.5438 against the dollar and £0.7802 against the pound, its weakest level since March 25.