The euro touched the 1.274 U.S. dollars: the market is speculating that the ECB could cut rates
Brussels - October 22, 2008 - The euro fell today below 1.28 U.S. dollars, a level not lost since November 2006. The dollar is benefiting from the perspectives of the new plan of economic recovery in the United States. But what really weighs on the European currency is speculation about a possible lowering of interest rates in the euro zone. Eurodollar in Ecotrade: without significant support until 1.21 and 1.1650.
The European currency is changed now above the 1.28 U.S. dollars. It has touched a low of 1.2743 in the session. The single currency lost yesterday a 2.11% of its value and with drops in today accumulates six consecutive days of downhill. Faced with the Japanese currency, the euro move back up to 127.01 yen, its lowest level since April 2004.
Decreases in rates
The European currency is suffering from speculation that suggest that the European Central Bank (ECB) will soon be forced to lower its interest rate to try to revive the economy in the euro zone.
According to Bloomberg, investors expect the entity chaired by Jean Claude Trichet lower the price of money by 75 percentage points in June, after a drop of 50 points to 3.75% last Oct. 8.
Citi analysts have recommended openly sell euros and buy dollars. They argue that the ECB will cut interest rates to stand at 2.5% due to the economic slowdown in the region and the relaxation of inflationary pressures.
Widespread recovery of the dollar
Is the euro wichi falls with strength or the dollar which recovers? Some trader indicate that market players, from hedge fund investors to Japanese, are reducing risk by cutting positions to achieve liquidity, in many cases exhibits Euro Medium and long term.
The Pound also suffers from the recovery of the U.S. currency. Fell to 1.6203 U.S. dollars, the lowest level since September 2003. In this case also speculated with the possibility that the Bank of England cut rates, especially after its governor, Mervyn King, has admitted that it is likely that UK falling into recession.
Solutions to problems
The U.S. currency is benefiting from Monday from President of the U.S. Federal Reserve (Fed), Ben Bernanke, who declared in favor of examining a new plan for fiscal stimulus by the U.S. Congress.
The Democrats, who control Congress, have argued in favor of a plan for economic revival of 150,000 million dollars.
An initial plan for fiscal stimulus of 168,000 million dollars was adopted by Congress in January and implemented in the spring. It had a positive effect seen by economists, but fleeting.
My Opinion
It is clear that the economic crisis has made many reconsider especially those who bet on a strong euro.
Today, we see that the euro may even have a travel until 1.23 - 1.15. In which case the euro would be placed in prices similar to those of November 2003.
The cuts in the euro zone are necessary to revive the European economy regardless of what makes the United States.
It is clear that a fiscal stimulus added in the United States help to the Dollar subiese of trading and thus help to an economic revival as well as a decline in public deficits in the United States.
Special interest brings us today on Latin America where there may be a slowdown more severe than anticipated and this is due to the uncertainty that is breathed in every market to which now joins Latin America, which was considered at the time of some colcohon Spanish and European companies especially now that causes this fall. So this is certainly the beginning of the crisis in the region.
The slowdown could reach up to 3.2%, which would in general terms, since they depend on the average each country, but a drop in raw materials of 10% would reduce growth by 75 basis points. And this is because many of the Latin American countries export commodities as may be the case with the Cobre de Chile or Mexico to oil. And this is because the raw materials are economic engines of several countries in the area.
Source: El Economista