Euro Bulls Crack as Odds of Return to 2013 Lows Jump: Currencies

The surprise decision by the European Central Bank to cut interest rates means there’s now about an even chance that the euro, this year’s best performing major currency, erases all of its gains in a matter of months.

There is an almost 50 percent probability the euro, which has risen more than 5 percent against the greenback since reaching a 2013 low in April, will give back its increase by mid-2014, according to data compiled by Bloomberg. The odds are the highest in seven weeks and up from 37 percent prior to the ECB lowering its key rate yesterday to a record.

While the euro area economy is seen shrinking 0.3 percent in 2013 based on a survey of more than 50 analysts by Bloomberg, the currency has still managed to appreciate on speculation ECB President Mario Draghi would refrain from further stimulus. That changed yesterday, catching traders who had pushed bullish bets to almost record highs off guard.

(Source: Bloomberg)