Is the euro vulnerable to a shift in ECB policy?

Last Thursday’s cut in the ECB’s refinancing rate and hints from the central bank’s President that the deposit rate could be reduced below zero have weighed on the euro. But the fall in the exchange rate against the dollar has been quite small and the big picture is that while the relative prospects for monetary policy in the euro-zone and the US have become a little less favourable for Europe’s single currency, they are likely to remain a net positive for the foreseeable future. That being said, we continue to think that a flare-up of the crisis in the euro-zone will rattle the euro later this year.