We first began to report to you that the euro reached an astonishing 5-week low against the dollar after a report about job losses and other negative data from Europe- but then we got more news that changed our story. In a startling new light, we have learned that the euro is actually now at a new two year low versus the U.S. dollar! That’s right the euro is nearing record lows (at $1.2300) in the market against not only the U.S. dollar but the Australian dollar, and the New Zealand dollar as well! The U.S. dollar is doing quite well as it reaches a new high in an year and a half versus the Swiss franc- this comes as a consequence of the U.S. job market reading shows a weak industry. Interest rate differential are also promising for the U.S. dollar, and promise to the play in the dollar’s favor. So, what’s the scoop on the fluctuations in the financial markets?
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The weak U.S. jobs data came a day after the European
Central Bank cut interest rates, further dampening the euro’s
appeal, and China and the Bank of England announced more
monetary easing.
With U.S. interest rates already near zero the loosening of
monetary policy in Europe and China diminishes the relative
interest rate advantages held over the greenback.
“Risk premiums come down and at some point interest rates
don’t compensate for sovereign risk,” said Paresh Upadhyaya,
director of currency strategy at Boston-based mutual fund
company Pioneer Investments, which has $200 billion in assets
under management.
“Today’s employment number, not so much that it fell short
of expectations, but that the data was likely strong enough to
keep the Fed at bay,” he said, referring to pressure on the U.S.
central bank to engage in more bond buying operations to inject
cash into the economy, also referred to as quantitative easing.
While the dollar was the safe bet against the euro,
investors flocked to the yen as an even safer bet than the
dollar.
“You might expect the yen to gain against the U.S. dollar –
as you’re seeing now – as it will be the preferred safe-haven
currency for today,” said John Doyle, senior strategist at
Tempus Consulting in Washington.
The euro fell 1 percent to a two year low of $1.2264
before rebounding to $1 .2296, off 0.77 p ercent on the day. The
dollar rose to a 1-1/2-year high against the Swiss franc.
The U.S. Labor Department said on Friday nonfarm payrolls
expanded by just 80,000 jobs in June, falling short of forecasts
though a tad higher than a revised May reading of 77,000. Job
creation during the month wasn’t enough to bring down the
country’s lofty 8.2 percent unemployment rate.
Against the yen, the dollar slipped 0.33 percent to 79.61
yen, off an earlier three-day low.
The euro lost 3 percent against the dollar this week, its
worst weekly performance since the week ended Sept. 11. The
dollar is down 0. 35 pe rcent against the yen for the week.
“Politically and economically, it is not the environment for
the euro to rally … In a week or a month’s time, it can easily
get back down towards below $1.2280 and maybe even head towards
$1.20,” Kathleen Brooks, research director at FOREX.com said in
London.
After a report from the U.S. showed that employers hired people at a very low rate in June, the euro fall further to the U.S. dollar on Friday than we had seen earlier in the day. Before this, the report was that the euro was only at a 5 week low, but mid-day Friday showed even further falling. The report is a reflection that the European debt crisis is having an impact on the U.S. economy and is causing a slowdown in the country.
The fall of the euro isn’t exactly all about the U.S. job reports and down shifted economy- this is also a result of the week’s earlier news about the rate cut by the European Central Bank.
Are you surprised that the euro is doing so poorly in the forex market? Let us know if you think this week will hold as many surprises as last- or if you think the economy in Europe will finally start to bounce back enough to strengthen the euro.
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