The euro fell transversely on the board earlier this week after the ECB President cut interest rates further and overflow the market with cheap money. Europe’s common currency hit a session low against the dollar and yen after the ECB President’ explanation in extending the earlier losses which stem from apprehensions regarding the length it will take Angela Merkel to unite the coalition following her recent party’s victory.
The ECB president told the European Parliament that the ECB is already prepared to offer banks with more long term loans to keep money-market rates from increasing that could result in low inflation loss.
The Eurozone interest rates would relatively remain at the present or possibly even lower levels for the time being. The euro was able to cut down against the dollar after remarks by the president of the New York Fed that their existing framework is still very much intact and operational. However, he did not specifically mention that the initial reduction in bond purchases would come at the Fed’s September meeting.
The outcome of Germany’s election drove the initial weakness of the euro. The German chancellor’s victory ultimately came at the expense of the Free Democrat Party which miserably failed to qualify as a recognised party, which in the scale of the present events cannot be considered to be a coalition under the present government.
The uncertainty that surrounds the coalition is looking quite supple with data showing above-forecast eurozone private sector business activity is putting this month provided the single currency a slight breather. Putting pressure on the euro were numbers showing that the German activities in the manufacturing sector unexpectedly slowed down.
The euro was able to gain more than 3 % against the dollar since it hit a low close to $1.31 in the past few weeks which prompted analysts to think of the possibility that it could struggle to extend gains unless otherwise the data can be made consistent to point to an improving Eurozone economy.
Depressing dollar outlook
The dollar was looking flat against the basket of currencies at 80.472 which although was above the seven-month low of 80.060 set last week following the Fed’s surprising disposition by keeping up with the pace of its bong buying stimulus which still remained unchanged at its recent meet regarding their existing policies.
Analysts at the UBS, said that the Fed is highly unlikely to act after it had changed its policy decision . The Fed’s decision would keep the dollar in its comparable weak outlook for one quarter before its long-term uptrend resumed and revised up their three month forecasts for the euro/dollar to $1.37 and $1.35, from $1.30 and $1.28 respectively.
The growth-linked Australian dollar was up 0.6 % at $0.9446 after data revealed China’s factory sector growth picked up an accelerated pace earlier this month.
Finally, the dollar fell 0.5 % to 98.76 yen, with traders saying that it is presently facing a strong resistance before the 100 yen.