Recovery of the Euro
The latest Forex trades showed the Euro increased again after the short period of decline however this instability shows nothing but the problems of the European economy. The purchasing manager’s index for the previous month increased up to 51.8 point but the growth trend was reported only by Germany; as for the Spain, France and Italy they have reported the slowdown.
As for the whole market opinion there are talks about further decreasing of the Euro.
Only several weeks ago the Euro reached the point of 1.60 and it declined to 1.55 the last week. Moreover the Euro declines not only in relation to the United States dollar but also against the British Pound and Japanese Yen.
According to the Capital Economics official there is no collapse in the Europe but there is an opinion that the situation now have surely turned against the Euro. However this opinion may turn to be an untimely one.
The Capital Economics official has also added that the differentials of the interest rates have the only aim to support the Euro. Consider the US situation, the rate cuts have stopped finally and there is a conviction that the Federal Reserve has managed to solve the problem, however in case the US economy will continue to fall the Federal Reserve will have to decrease interest rates furthermore.
We suppose that the Eurozone will not change its decision concerning interest rate policy throughout this week. As for the inflation it still remains the main task the European Central Bank faces as the March numbers turned to be a bit higher than they were expected to be.
According to the Simon Derrick from Ban of New York Mellon the United States dollar experienced many rate cuts and now it seems to be quite competitively priced however we can not say the same about the Euro that has experienced certain decline recently. Therefore we may suppose that the Euro will come back to its initial positions below 1.50 point.
The reason of this week USD growth is the ISM non-manufacturing index numbers issued this Monday. It has increased sharply up to 52.0 and overcome the level expected.
We suppose that the attention now will be given to the interest rates decisions in the EU and Great Britain.
The markets expectation is that there will be no changes in the interest rates of the ECB and Bank of England. However the British Central Bank will consider the possibility of rate cut in case of further data lowering. The current situation shows us that the service sector of the UK (it is about two-thirds of the country’s economy) is almost in a recession.
