It looks like more trouble is ahead for the euro as it falls even further against the dollar pending a decision about the ECB rate. With investors predicting that the European Central Bank (ECB) will cut its benchmark interest rate during their meeting on Thursday, doubts about a plan by Europe to support its debt ridden countries is on the rise. Confidence is falling even more quickly than imagined and is backed by data out the euro zone that would not promote an optimistic outlook for anyone. Meanwhile, trading in the United States financial markets is light in the days prior to the national holiday, Fourth of July/Independence Day, on Wednesday. This is also in conjunction with the Aussie holding steady as the RBA makes a move to leave rates on hold.
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FOREX-Euro falls vs dollar with ECB rate decision ahead
The euro fell against the dollar on Tuesday with investors
betting that the European Central Bank will cut its benchmark
interest rate at its meeting on Thursday amid poor euro zone
data and doubts about a European plan to support indebted
countries.
Signs out of the euro zone were generally discouraging,
keeping sentiment toward the euro bearish. The jobless rate rose
to a record in May and factory activity contracted again in
June.
That overshadowed any optimism remaining from an
announcement last week that euro zone leaders agreed rescue
funds could be used to stabilize bond markets without forcing
countries that comply with EU budget rules to adopt extra
austerity measures or economic reforms.
Finland and the Netherlands, two of the currency bloc’s most
hard-line creditor states, had already cast doubt on the
measures on M onday.
“This week’s key event for the euro remains the ECB meeting
on Thursday, where expectations are for a 25 basis point cut in
the policy rate to 0.75 percent,” said Eric Theoret, currency
strategist at Scotiabank in Toronto. “While a rate cut had been
discussed at the last meeting, a majority of the governing
council had voted to maintain rates. It has since been rumored
that a majority now favors easing rates.”
The euro was last down 0.2 percent at $1.2566, just
off the session low of $1.2558 and well below a peak of $1.2693
hit on Friday in the wake of an EU summit agreement, the latest
attempt to stem the ongoing crisis.
Against the safe-haven yen the euro was up 0.2
percent at 100.21 yen, still well below post-summit highs above
101.00 yen.
Activity was relatively light, which may have been
exacerbating moves, ahead of the Fourth of July U.S. holiday,
traders said.
ECB AWAITED
Many traders expect the ECB to move on Thursday to bolster
the euro zone economy by cutting its main refinancing rate.
Jaco Rouw, fund manager at ING Investment Management in
London, said there were differing opinions as to the impact of
any rate cut, but he expected the euro to weaken given the poor
economic outlook for the currency bloc.
“One opinion is that the rate cut might boost risk sentiment
and reduce the risk premium in the euro which could be positive,
but a lower rate in itself would be euro negative,” he said.
“In the longer term, based on economic developments, there
is still room for more monetary easing in Europe so we would
position for a weaker euro.”
Some also expect the Federal Reserve to announce a third
round of asset purchases, dubbed QE3, perhaps as soon as the
U.S. central bank’s next policy meeting from July 31 to Aug. 1.
Australia’s central bank held its main cash rate steady at
3.5 percent on Tuesday, to continue to gauge the effect of
back-to-back cuts.
The Australian dollar was little changed at $1.0243,
still within half a cent an earlier two-month high.
The U.S. dollar rose 0.4 percent and bought 79.80 yen
Traders said dollar buying by model funds was offset by
selling by Asian retail accounts.
Source
The euro soared on Friday after a deal was made at the European Union summit to allow funds to be released to ease debt in the area- this was very short lived. By the end of the day on Monday, all hope was lost that real progress was actually being made. Now, the euro is vulnerable ahead of a decision by the ECB that will affect borrowing rates. Combine the uncertainty about rates with data that showed a major slowdown in manufacturing and production, and a major hike in joblessness rates.
On the other side of the pound, United States markets are trading light before the National holiday on Wednesday. Some experts also predict that the Fed is going to make a third round of asset purchases in the upcoming policy meeting of the U.S. central bank starting on July 31st and extending to August 1st. After a decision by the Australian banks to hold its main cash rate steady, the Australian dollar saw a two month high.
Do you think the euro is going to keep falling, or do you think there’s another surge ahead?
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