On Thursday morning, the European cut interest rates for 0.50% to 0.25%. ECB President Mario Draghi said this at the press conference announcing rates:
These decisions are in line with our forward guidance of July 2013, given the latest indications of further diminishing underlying price pressures in the euro area over the medium term, starting from currently low annual inflation rates of below 1%. In keeping with this picture, monetary and, in particular, credit dynamics remain subdued.
In other words, the ECB is cutting rates because inflation and lending are lower than it would like. For the ECB, that's a problem because it's desperate to get Europe's economy on the move. Eurozone unemployment is at 12.2% and it's expected to stay there into 2014. Meanwhile, its GDP is expected to grow by 1.1% next year.
In contrast, the United States has an official unemployment rate at 7.3% and its Consumer Price Index has risen 1.2% over the last twelve months. Thursday morning, US third-quarter GDP data was release showing growth at an annual rate of 2.8%.
One big difference between the US and the EU is the flexibility of their respective central banks. The US Federal Reserve Bank has been engaged in a policy of "quantitative easing" whereby it purchases Treasury and mortgage bonds, adding dollars into the economy and lowering interest rates. Since December, the Fed has been doing so at a rate of $85 billion per month. The ECB doesn't have the mandate to conduct such measures in Europe. And, it's running out of interest rates to cut.
CNBC contributor Kathy Lien, managing director of FX strategy at BK Asset Management, says the euro is headed down. In the video above, Lien gives three reasons why she sees euro as a short against the US dollar.
To see Lien's three reasons why the euro is going lower, watch the video above.
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