Dollar Gains on Euro For Sixth Straight Week
The long awaited Fed rate hike happened and markets were quick to react. The greenback posted gains for the sixth straight week against the euro and the multi nation currency hit a nine month low after a February 15th meeting of European Finance ministers told Greece to prepare additional austerity measures in case the troubled nation cannot demonstrate sufficient progress in reducing the deficit by the next meeting on March 16th. The Fed rate hike prompted speculation among investors that the Fed will withdraw emergency stimulus measures. Vassili Serebriakov, of Wells Fargo stated, “The dollar should continue to do well against weaker G10 currencies like the euro, the yen and the pound. Serebriakov also said that the hike “was an important first step on the way to policy normalization.” The dollar gained 0.14% against the euro this week trading at $1.3613. The dollar gained 1.7% vs. the yen and traded at 91.62 yen.
Fed Says No Change in Monetary Policy
The Fed raised the rate it charges banks for direct loans from 0.50% to 0.75% and also said that the “the typical maximum maturity for primary credit loans will be shortened to overnight” on March 18th. Additional Fed statements said that “These changes are intended as a further normalization of the Federal Reserve’s lending facilities,” and that the Fed’s actions “do not signal any change in the outlook for the economy or for monetary policy.”
Expert Says That Greek Crisis Could Lead to EU Breakup
The euro remains under intense pressure by the ongoing Greek debt crisis. Currently Greece’s budget gap is more than four times what EU rules allow and many fear that Greece’s problems will spread to other EU nations, most notably Spain and Portugal. Societe Generale SA strategist Albert Edwards said the euro zone was poised to break up. Edwards said that the problems facing Greece, Portugal and Spain “is that years of inappropriately low interest rates resulted in overheating and rapid inflation.” In a pessimistic assessment of the future of the euro zone Edwards warned that even if “could slash their fiscal deficits, the lack of competitiveness within the euro zone needs years of relative (and probably given the outlook elsewhere, absolute) deflation. Any help given to Greece merely delays the inevitable breakup of the euro zone.” Opposition to any aid to Greece is fierce in Germany and the Netherlands. Polls show that a majority of citizens in both countries oppose aid to Greece and many polled favor ejecting Greece from the EU. Clearly the euro zone is in real trouble.
