Euro Impressive Against Dollar
Seven weeks ago, the euro was staggering. After creating a $100 billion safety fund, the euro zone has implemented a series of austerity cuts while countries that seemed pitted against each other have pulled together in a common cause to save their troubled currency.
The originally divisive financial plan, which includes stress testing of the zone’s 100 largest banks, has buoyed the euro. In overnight trading, the euro reached a two-month high at $1.2970 and seems certain to cross the $1.30 threshold soon.
On June 7th, the euro had fallen to $1.1875. Based upon strong showings at debt auctions in Greece, Portugal and Spain, the euro has stabilized and has moved ahead. Greece, Spain and Portugal have suffered credit rating reductions by all major credit agencies.
The European Central Bank’s strong cash position has eased intra-bank trading. The euro has gained 9 percent since early June and unless the Federal Reserve raises its rates, the dollar may continue to slide against other currencies. Thus far, the Federal Reserve has hesitated to raise rates because another round of quantitative easing may well be in the offing.
On July 1st, the dollar fell to 89.96 yen, the lowest rate since December. The dollar’s 14-year low against the yen is 84.82, struck in November 2009. After that fall, the Bank of Japan invested 10 trillion yen in the dollar. Analysts had projected a 90.18 dollar/yen gain by March 2011.
Euro Zone Progress
Following a solid Spanish bond auction, successfully renegotiated wages in Greece and a vote of confidence in Italy, French Prime Minister Francois Fillion addressed the media on Friday. The Prime Minister stressed that recent weakness in the euro was the result of poor national fiscal policies and not weakness in the euro currency system.
The prime minister allayed fears by asserting that the euro was on the mend. Fillion pushed Japan to maintain faith in the currency.
“Greece has endangered the credibility of its budgets, but public finances in the EU are no worse than the situation in the U.S/ and Japan,” said Fillion.
In early Friday trading, the dollar continued its 1 percent slide against the euro, the yen and sterling. Poor economic news and political infighting have caused weakening of the dollar.
A report showing that producer prices fell for the third successive month was released on Thursday. On top of the Empire State Survey, conducted by the New York Federal Reserve, which shows that New York’s production fell to its lowest rates since December, and a similar report in Pennsylvania, projections for growth have been trimmed.
Goldman Sachs released projections that the euro would rise to $1.35 in the next six to 12 months. As bond auctions in the U.S. continue weak performances, investors are left to question exactly what is the economic policy in Washington today?
The International Monetary Fund earlier raised predictions of U.S. GDP to 3.3 percent in 2010 and 2.9 percent in 2011. The nation’s high unemployment rate and steadily climbing foreclosure rates are the chief concerns of the IMF, who suggested that unless these problems were addressed, the likelihood of a double dip is strong.
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