EUR/USD has fallen as low as 1.3620, according to Reuters, in early Asian dealing as the market votes thumbs down on the piecemeal approach the European countries are taking toward bank rescues. The worse the situation gets, the greater the likelihood of the ECB cutting rates sooner than expected, perhaps as early as this week.
After leading the way early in the credit crisis by aggressively and inventively injecting liquidity into the system, the ECB has become quite passive of late. The weakness of the European system of multiple Treasuries along with a myriad of rigid rules designed to thwart profligatand one central bank along with spending by formerly spendthrift countries like Italy and Spain hamstrings policymakers from taking extraordinary actions in extraordinary times like we are experiencing today.
Finance ministers meet again Monday and Tuesday so there still may be a chance for a more comprehensive approach but that could upset the market as the Stability Pact could be suspended to make it work. There is always something to complain about for Mr. Market.
