The currency strengthened a lot in the past months, the EUR/USD is at about 1.067. The opposite policies carried out by the two major central banks of the world may push the dollar even further. Lee Hardman, currency analyst at Bank of Tokyo-Mitsubishi says that the tipping point will be at $1.05 per euro. If the dollar will pass this point then it might be more likely that the dollar will strengthen even more. Other analyst believe that 1.05 is just a psychological level but which could actually lead investor to buy dollars and sell euros.
The market is really volatile and important decisions won’t be taken until the FED would have given a final decisions on the interest rates. Maybe the market is already discounting expectation on a stronger dollar but more the FED will wait to raise interest rates more is likely that it will raise interest rates in the next future thus allowing investor to buy more dollars. The two opposite policies taken by ECB and FED would lead the dollar maybe at level that we have ‘not seen since the first years euro was born as a currency . The probability of a rate rise from the FED is at about 70% and this will probably get higher and higher in the coming months. Us economy and the labour market is strong enough to support an interest rate rise and this change would give the market a clear signal that the financial crisis is finally over.
On the other hand, the ECB is following an aggressive policy implementing Quantitative Easing and the Paris attack, which has also posed some concerns about the flow of people in Europe, could have a possible impact on economic growth, thus weakening the euro.
To conclude, in my opinion the FED will rise interest rate soon and probably already in December, the ECB will keep interest rate low since Europe is still recovering and the weak EURO will help European companies to export and maybe increase their market shares. I do believe that currencies will have a great impact on the European recovery which would get faster while US economy will suffer a huge negative trade balance in the long run.
Gianluigi Bracci
The market is really volatile and important decisions won’t be taken until the FED would have given a final decisions on the interest rates. Maybe the market is already discounting expectation on a stronger dollar but more the FED will wait to raise interest rates more is likely that it will raise interest rates in the next future thus allowing investor to buy more dollars. The two opposite policies taken by ECB and FED would lead the dollar maybe at level that we have ‘not seen since the first years euro was born as a currency . The probability of a rate rise from the FED is at about 70% and this will probably get higher and higher in the coming months. Us economy and the labour market is strong enough to support an interest rate rise and this change would give the market a clear signal that the financial crisis is finally over.
On the other hand, the ECB is following an aggressive policy implementing Quantitative Easing and the Paris attack, which has also posed some concerns about the flow of people in Europe, could have a possible impact on economic growth, thus weakening the euro.
To conclude, in my opinion the FED will rise interest rate soon and probably already in December, the ECB will keep interest rate low since Europe is still recovering and the weak EURO will help European companies to export and maybe increase their market shares. I do believe that currencies will have a great impact on the European recovery which would get faster while US economy will suffer a huge negative trade balance in the long run.
Gianluigi Bracci