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The euro has been trimming gains on the dollar which reflect the retreat in European shares and there is considerable sentiment around that the euro will come under increasing pressure if no further economic stimulus materialises from the Federal Reserve.
There have been forces working in both directions on the Euro. There has been extensive selling by US investment banks which has forced down its value whilst in the opposite direction we have increased demand by both eastern and main Europe.
With even more speculation on further quantitive easing by the US the dollar has suffered a decrease in value but although there is significant danger of the US economy moving once more into recession it is not at all certain that this threat will result in further bond buying by Ben Bernanke, the chairman of the Federal Reserve.
There have been many comments from both market analysts and traders that the markets had become too concerned about positioning themselves in readiness for more quantitive easing. Many more sell bets have been placed on the dollar over recent weeks in readiness to quickly re-buy them as the markets initially react to an announcement of quantitive easing. This could turn out to be a perfect example of that old adage to buy the rumour then sell the fact.
Unsurprisingly the currently weak euro along with New Zealand and Australian dollars have benefitted from the current weakness in the dollar.
The sovereign debt problems of Europe along with the delicate euro zone economy all exacerbated by the continued weakening of the outlook of global growth it not going to go away anywhere soon and is likely to be the main market focus over the coming months once the present dollar confusion has settled down.
An interesting development is that Japan may enter the FX market in an attempt to weaken its own currency or at least to curtain its current rate of growth in value. This is having a positive effect on the dollar’s value.
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