Fed Plans Raise Concerns
On Friday the US dollar made slight gains but despite gains the dollar had its worst week since 1985. Forex traders and investors expressed concerns over Federal Reserve plans to purchase long term government debt. Forex traders fear the policy will erode the US dollar. The Fed stunned financial markets and forex traders then it announced plans to buy $1 trillion of government and mortgage backed debt in an attempt to cut interest rates and thaw credit markets.
Euro at Two Month High
Forex traders anticipated a flood of dollars and sold the dollar in favor of other currencies. The Euro climbed to a two month high of $1.37 and is on track for its biggest daily gain since 1999. Mike Moran of Standard Chartered Bank stated, “I think we will look back at this week and see it as seminal one because the Fed changed the way forex markets perceive monetary policy and the dollar.”
Production Figures Put Pressure on the Euro
The Euro fell slightly on Friday and traded at $1.3563 against the dollar. Economic data showed that Euro Zone production fell for the fifth straight month and put pressure on the currency. Forex traders noted that the Euro had made significant gains in the previous week jumping from $1.2922 to a high of $1.3737 in one week.
Central Banks Take Action
Any forex traders predict that a weak dollar will cause problems for other economies in both Europe and Asia. A weak dollar will raise the value of other currencies possibly causing deflation. Actions by central banks in Britain, Japan and Switzerland are taking action designed to address the problem of deflation.
ECB Expected to Lower Rates
The European Central Bank is seen as behind the curve in addressing economic problems and still has interest rates of 1.5% and forex traders see this as putting pressure on the Euro. Currency strategists at the ECB stated, “We believe the ECB will need to shift its rhetoric as soon as possible,” and also stated that the ECB will probably cut rates to 1% in April.
Many forex traders predict a good week for the Euro and Boris Schlossberg of GFT Forex believes the Euro may trade as high as $1.40 this week. Forex traders and investors will be watching the Euro closely.
