As the European Central Bank prints more money, and lowers its interest rates, demand for the euro in the foreign exchange market falls because capital leaves the country to find better return abroad. This weakens the euro which makes its exports less expensive, and stimulates employment in the domestic economies of the Eurozone.
Of course, this also weakens export driven economies like those in Asia (and in the US), which could lead to a "currency war" where rival central banks print money and reduce interest rates to keep their own currencies low.
South Korea ... currency fell 0.5% against the dollar and 0.7% versus the euro on the news.
Thailand’s decision to cut rates Wednesday also helps its exporters, who have been complaining recently about the baht currency’s relative strength.
No matter what the rhetoric is from central bankers, many of them are hoping that rate cuts help lower the value of their currencies versus those of their neighbors.
“They’re thinking of it in the context of currency wars,” said David Mann, chief economist in Asia at Standard Chartered Bank.
As the MBAOracle.com says:
Use game theory to figure out where self interest is taking you; if you don’t like where that is, change the rules of the game.