Euro Strong Again As Rates Expected To Hold
The euro has enjoyed yet another significant trading session against the dollar, which has seen its value edge close to the $1.43 mark off the back of investor anticipation of more Federal Reserve interest rate cuts.
The dollar weakened yet further in Asian trading amidst fears that negative US data due this week could prompt the Federal Reserve to cut interest rates even further when they meet this month, a move that would cause further devaluation of the dollar across the globe. The dollar has seen significant losses since the Reserve cut rates by 0.5% points last month.
Meanwhile the value of the euro continued to ride high with anticipation of the European Central Bank maintaining interest rates at their current 4% level when their policy committee meets this week, which will continue to support the current strength of the euro against the dollar.
In Asian trade today the euro was up to $1.4283 against the dollar, edging ever closer to the landmark $1.43 figure. However, should prolonged strength in the euro become a more permanent fixture, businesses within the eurozone trading abroad may find themselves in significant difficulties.
Plane manufacturer Airbus have already issued a warning that a rate of $1.45 for the euro could lead to extensive job cuts, as it eventually becomes priced out of its market and is forced to cut fares.
The strong euro means that those trading in export goods outwith the eurozone, even within the EU, are facing uncompetitiveness and weaker sales in the short term, with unemployment a probable side effect.
Whilst many have called for eurozone interest rates to be cut amidst ongoing fears of the strong currency valuation, it is thought that Jean Claude Trichet will refrain from making any such announcement as he delivers the ECB’s verdict later this week, with the threat of inflation and overheating very much a primary consideration.
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