ECB to Reduce Rates

The US dollar gained in the last three trading sessions amid more signs of economic weakness from the Euro Zone. Many experts expect the European Central Bank to reduce rates further. The dollar benefited from the expected stimulus plan and Forex traders and investors expect the plans announced by the incoming Obama administration to help the US to recover from the recession faster than other countries.

Euro Hits Three Week Low

The Euro hit a three week low against the dollar after a fall in euro zone inflation prompted speculation that the ECB would continue to cut rates. Boris Schlossberg, director of currency research at GFT Forex stated, “It’s more of a euro sell-off than a dollar rally and has something to do with the fact that markets do not believe the ECB can maintain interest rates above 2 percent for much longer. On the other hand, the Obama stimulus package has also helped the dollar. The hope is that the stimulus plan would enable a quick U.S. economic rebound.”

Dollar Rises Against Yen

Losses in the Euro prompted dollar gains and the dollar rose above 94 Yen, the highest in a month and the dollar index was at a three week high. According to Forex traders the Euro was down 1.5% to $1.3397, it’

s weakest in a month.

Dollar May Experience Pullback

Volatility in Forex markets has kept Forex traders on their toes. Many believe that given the dollar’

s recent gains the currency is due for a short term pullback. A Brown Brothers Harriman research note stated, “Short-term momentum studies are over-extended, suggesting operators may find it difficult to substantially extend the dollar’s gains scored in Asia and Europe.”

Bad News From Euro Zone

In a statement that made Forex traders take note Adam Cole, global head of currency strategy at RBC said, “The balance of news from Europe is so poor that the market is perceiving that the ECB is behind the curve.”

The ECB is expected to cut rates by 50 basis points or more next week in an attempt to bolster the beleaguered currency.

Forex traders and investors globally are watching the United States and its monetary policies. Many expect the US to recover at a faster pace than Japan and the Euro Zone. Hopefully they will realize their expectations.