Shocking Numbers, Dark Cloud Over Europe
The euro appears to have found significant strength recently. The currency market is favoring the euro against both the U.S. dollar and the U.K. pound. Both currencies are finding it hard to stop the euro in online forex trading as their economies continue to struggle. Euro strength and dollar weakness further emerge in thin trading activity as geopolitical uncertainty creeps higher. Euros anti-dollar attribute is being underscored by the ECBs reluctance to telegraph further easing, the negative releases from the US and the ensuing geopolitical uncertainties from the Middle East and South Asia. Euro strength is creeping across the board, hitting fresh all time high against Sterling at 0.9795, paving the path for parity as early as this week.
The British Pound continued its move towards parity against the Euro and slid lower against the U.S. Dollar ahead of the New Year, which suggests that investors remain bearish against the currency as market participants widely expect the Bank of England to lower borrowing costs even further in January. The pound is being driven down by expectations that the Bank of England will cut interest rates to stimulate the economy, which shrank by 0.6 percent in the third quarter, and looks like it is heading into a serious recession. Interest rate cuts can weaken demand for a country’s currency by reducing the yield on interest-bearing investments.
Weakening fundamentals have certainly dragged on the British Pound throughout the second half of the year, and the event risks scheduled for the following week could weigh on the currency as growth prospects deteriorate at a rapid pace. As credit conditions remain far from normal, private sector spending, which is one of the biggest drivers of growth, is likely to remain subdued throughout the coming months, and would only heighten the downside risks for growth going forward.
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