UPDATE – Euro Interest Rate Hike Fails To Support Exchange Rates

April 27, 2000

As expected, the European Central Bank (ECB) raised interest rates on the Euro today, but only by what most analysts considered a paltry 25 basis points. The move, which raised the effective rate to 3.75 percent, didn’t help the battered European common currency, which immediately after the annoucement fell to a new low of $0.9064 against the dollar.

The central problem, didn’t appear to be any real fear of inflation, nor even the extremely robust American economy, but simply that investors had “lost faith in the Euro’s credibility,” according to a lengthy article in the European Edition of the Wall Street Journal, which appeared before the rate rise announcement.

As if to validate this theory, European economic spokesman were both positive and negative about the rate rise. While generally praised in Germany as long overdue, French Finance Minister, Laurent Fabius, told television interviewers that, despite the Euro’s recent weakness, the move was unnecessary, and would hinder economic growth.

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