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Euro Tumbles

Currencies Direct April 17th 2009 - 2 minute read

Finally it seems as though Banks are starting to turn a corner. Following the positive results from US investment banks this week the market has been given a boost. With the UK having such a strong banking presence this news has also helped to boost sterling seeing GBP extend gains over the week to peak at 1.5068 yesterday. At the time of writing GBP is trading at 1.4825.

In the Eurozone the Euro has fallen to a one month low against the USD erasing gains seen at the end of February which saw EUR peak at 1.3660. EUR has also fallen to a two month low against GBP. At the time of writing EUR is trading at 1.3090 against USD and 0.8822 against GBP.

Courtesy of better than expected bank results; focus in Europe appears to be shifting with the spotlight moving away from the UK towards Europe.

Yesterday the ECB president, Jean-Claude Trichet, said the central bank must do everything possible to boost confidence, signaling to the market that the ECB may cut rates from the current 1.25%. The next ECB meeting (and BOE meeting) is on 7th May. The ECB has a history of prepping the market ahead of any rate moves in order to avoid any surprises; hence these direct comments from Tritchet are quite a clear indication as to their next move. Bloomberg is predicting a 0.25% cut on 7th May. This sentiment places continued downside pressure on the Euro and could therefore see EUR remain under pressure.

We are also seeing small cracks in the ECB; the ECB’s Governing Council is split in opinion as to how best to tackle the current problems. Some members favour a more active approach encouraging rate cuts, following suit of other central banks, whilst others prefer a conservative approach. The ECB may come under strain as decisions become trickier to make. Trichet has denied this split; however, three different views from Germany, Greece and Austria have been voiced in the past week alone.

Contributing to yesterday’s dollar index rise was expectations ahead of the University of Michigan Confidence report. The report is out at 2pm today which may see consumer confidence in the world’s largest economy increase for a second month. For the optimists amongst us, this adds further evidence that the recession may be easing, but how long and slow the recovery ahead will be remains to be seen.

The contents of this report are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. Currencies Direct cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

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