Europe is going bad but the euro remains strong
Eighteen months after the initial concerns about the European debts, the situation on the old continent is still fragile. However, the euro remains surprisingly strong. The euro hovered around $ 1.45 since April, and rose more than 8% since the beginning of the year, and 15.5% in one year. "The first explanation that justifies the euro strengthens and weakens the dollar is in the interest rates: in Europe, they are likely to be faced by the ECB on Thursday, reaching 1.50% while those U.S. Federal Reserve and will still remain long remain between 0 and 0.25%, "says Bruno Rodier, private banker and portfolio manager at Pictet & Cie.This differential rate encourages investors to take advantage of the "carry trade", this technique to generate returns by borrowing in dollars at a rate unusually low, and place it in euros, which pays better.
"The situation should not change in the coming months because when the European Central Bank has the sole purpose of containing inflation by raising interest rates, the Fed also has the task of supporting growth and employment and maintain long-term rates low and a weak currency to do so, "said Harry Sebag, an analyst at Saxo Bank.He said the Fed will not change its monetary policy anytime soon because it looks especially the real estate market across the Atlantic, the one who caused the economic crisis and financial crisis in the summer of 2007, which is still not out business.
The dollar is kept artificially low
But even more than the strengthening of the euro, especially on the weak dollar that the experts agree. And has been a little more than a year: the Fed announcement as it injects new astronomical quantities (600 billion) dollars in the global economy. Instantly, the dollar lost its value against other currencies, and the effect lasted until now."There is also the effect 'end of world supremacy' of the dollar plays, including the report of the World Bank has recently anticipated that by 2025, that is to say tomorrow, the market currencies will be dominated also by the Chinese yuan, not only by the dollar and the euro, "notes Vincent Juvyns, strategist at ING IM cash advance no fax.
The role of the dollar as the global benchmark fading as global governance wants to reform the international monetary system. In this perspective, little by little, investors include the future landscape of the exchange market and exchange their dollars into yuan and euro. "At the same time, we must take into account the cultural dimension of geographical areas: Europe, under the influence of Germany was a culture of rent, we want to keep a strong currency.This contrasts with the current pattern of currency war, which is to artificially push down its currency to promote its own foreign trade, "said Bruno Rodier.
Europe is going less badly than the U.S.
Finally, if Europe goes wrong, it will hurt less than the United States. Bad news on the macroeconomic front here and on the other side of the Atlantic, lower the respective currencies, but the U.S. figures are still worse than the European data, the dollar fell more than the euro. So the euro / dollar rate goes up anyway. "If you took away the effect debt, the euro was trading at least $ 1.50," Harry Sebag plans.Recently, the growth forecasts for the European Union were found, while those for the United States have been degraded.
Thus, the twists in the case of Greece, or fears of contagion from the crisis of sovereign debt of countries in the euro area peripheral to Italy or France, they have had little effect on the euro itself. "The currency market is highly sensitive to very short term. But in the coming weeks, the scenario of an outbreak of the euro area remains the least plausible of all, "says Vincent Juvyns, underlining that" challenges remain whole in the longer term. " The markets seem optimistic about the ability of European governance to agree to find solutions to problems of public finances of member countries."And Nicolas Sarkozy, Angela Merkel, and Jean-Claude Trichet has always reassuring words to soothe the markets when tensions rise," added the expert.
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