ECB rate cut talk lifts shares, euro slips
By Richard Hubbard
LONDON (Reuters) - Europe's share markets firmed and the common currency slipped on Tuesday as a sharp fall in euro zone inflation and rising unemployment bolstered expectations of an interest rate cut by the European Central Bank this week.
However, the euro's falls against the dollar were capped by rising speculation that soft U.S. economic data may persuade the Federal Reserve, which starts a two-day policy meeting later in the day, to stick with its aggressive stimulus plan for longer. FED
Annual inflation across the euro zone dropped to a three-year low of 1.2 percent in April, while separate data showed joblessness hit a record 12.1 percent in March. ECONEZ
"I'd be very surprised if they (the ECB) didn't cut rates. I don't know how bad it has to get before they actually take action," said Richard Driver, a currency market analyst for Caxton FX.
"There's plenty of debate over how much good a rate cut would actually do, but to be honest, with inflation so weak as we've seen this morning, it's worth a try," he said.
The euro was down 0.2 percent against the dollar at $1.3070 while against a basket of six major currencies, the greenback was hovering near a two-week low around 82 .DXY.
A cut in the ECB benchmark rate by 25 basis points to a record low of 0.5 percent after its policy meeting on Thursday has been largely factored in by financial markets, though many analysts and dealers still harbor some doubts it will happen.
Only a narrow majority of 76 economists polled by Reuters last week forecast a 25 basis point cut in the main rate to 0.5 percent on Thursday. A separate survey of money market dealers showed they were evenly split on any move. Continued...