ENP Newswire -
Release date- 02092014 - The world's major currencies, which had traded in a relatively stable range, are now in motion - buffeted by different regional growth and interest rates as well as a simmering brew of geopolitical tensions.
The key to the magnitude of these currency moves is in the hands of the monetary policy of the ECB.
The world's major currencies, which had traded in a relatively stable range, are now in motion - buffeted by different regional growth and interest rates as well as a simmering brew of geopolitical tensions.
Differences are particularly noticeable between the U.S. and
Last week's economic data confirmed that the euro area and the U.S. are on quite different growth trajectories. Their banking systems are also in different stages of healing. The U.S. is growing faster and mending more quickly, so we should expect a widening diversion in monetary policies. Look for a gradually less accommodating Federal Reserve while the ECB seeks to further loosen its monetary and credit policies. In short, the dollar should continue to appreciate against the euro.
Geopolitical factors also favor a stronger dollar, largely because
The key to the magnitude of these currency moves is in the hands of the ECB. If investors get the sense that the ECB is indeed loosening monetary policy further, as I believe it will, the euro could easily break through important resistance levels. Indeed, the euro could find itself trading below
Such a move would be further reinforced by two technical factors.
When investing in equities, many international investors do so without hedging their currency exposures - meaning they do not separate the risk from investing in global equities from possible losses (or gains) that could materialize due to currency moves. As such, sharp currency depreciations can also trigger significant equity sales, which, in turn, add fuel to currency moves. Lower policy interest rates will also make the euro more desirable as a funding currency for traders, further causing capital markets to move away from investments in the euro area's government bonds and distressed credits.
I expect all of this to occur in the months to come, particularly when the ECB decides to take additional steps this autumn to loosen monetary policy - actions that it will deem necessary to help
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