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The possibility of the interest rate growth by the European Central Bank in the next month caused the decline of the United States currency throughout the afternoon forex trades in Asia. It is expected that the European Central Bank will raise the interest rate after such intention was expressed by its president with intention to constrain the inflation.
According to the experts forecasts the inflation report for the May that is to be issued soon will show us the increased prices by 3.6 percent for the year passed that is quite higher than the average 2 percent level permissible by the ECB. However the growing oil prices also contribute to the inflation trends in Europe as well as in the USA, the UK, Canada and Asia.
Due to David Mann – currency strategist at Standard Chartered Bank the it is quite possible that the ECB will increase interest rates in the next month and it seems to be the one-time action. Nevertheless there is a possibility of further interest rate changes in case the inflation troubles will not cease.
The European interest rate has not being changed since the last June and remained at the 4% point the biggest one for the last 6 years. So the possibility of the interest rates growth in the Eurozone lead to the fall of the USD in favor of the Euro that has reached the highest level in relation to the USD throughout the last months.
As for the Federal Reserve there is no changes of the interest rate are expected. So according to the recent data the Euro is traded at $1.5397 and the USD was at the point of 108.21 Yen.
Furthermore we should also mention the last week summit of G8 in Japan. Many experts forecasted that the after meeting statement will refer the point of weak US currency and support it.
Moreover the issue of the US inflation report on Friday contributed to the high USD position in relation to Euro as there increased hopes that the Federal Reserve will not tighten monetary policy. The inflation report released showed the 0.6 percent growth of the prices that was caused partly by the increased energy prices. As for the Core inflation (i.e. the numbers without food and energy data) it has increased only by 0.2 percent.
Such rapid growth of the inflation is limited by unstable data of food and energy sectors and this is a kind of consolation for investors.
According to John Noonan a senior forex analyst at Thomson IFR Markets the fact that there was almost no discussion about the forex issues throughout the G8 summit was quite unexpected for the traders.
The only announcement was the one concerning the strong USD made by the US Treasury Secretary – Henry Paulson. Noonan has also added that as the G8 agreed that the strong US currency is quite important tool to prevent inflation they have not agreed about the impact of the USD on the high oil prices.