Traders Betting on ECB Cut Spur Biggest Euro Drop in Five Months

(Bloomberg) --

Money markets are in no doubt the European Central Bank will cut interest rates next week, fueling the biggest decline for the euro since September.

Traders see a 100% chance of a 10 basis-point cut by the ECB, up from 80% on Tuesday. The prospects of more easing sent the euro tumbling as much as 0.7%, ending the currency’s best four-day winning streak in more than two years.

The ECB is seen pushing rates deeper into negative territory after the European Commission warned the coronavirus outbreak is threatening to plunge both France and Italy into recession.

Traders are pricing in similar moves from other central banks, including the Bank of England, which decides on borrowing costs at the end of March. They saw a roughly 70% chance of a 50 basis-point cut by the Bank of Canada at the close on Tuesday, and they were proved right.

The euro eased declines to 0.4% as of 3:18 p.m. in London to $1.1126.

--With assistance from Anooja Debnath.

To contact the reporters on this story: Dana El Baltaji in Dubai at delbaltaji@bloomberg.net;James Hirai in London at jhirai3@bloomberg.net

To contact the editors responsible for this story: Rachel Evans at revans43@bloomberg.net, William Shaw

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