Amid indications from the European Central Bank (ECB) over easing of monetary policy in its June review, the euro has remained sluggish in the past few weeks. The18 nation currency has hit a one month low and has remained weak against most of its 16 major counterparts
According to the stock analysts, the euro has fell the most in the past seven weeks against the dollar after the ECB’s indications. Such a signal has made rival currencies more attractive.
The euro weakened 0.7 percent to USD 1.374 while the local currency also fell from almost a 2.5-year high of just below USD 1.40.
Banks including Goldman Sachs Group Inc. and Royal Bank of Scotland Group Plc are keeping a hawk’s eye on the market movement and has predicted that the ECB will cut interest rates in its policy review.
Recently, ECB president Mario Draghi has said that the policy makers would be “comfortable” with further easing in June policy review. These steps will support the euro-zone economy, he said.
What experts say?
Ian Gordon, FX strategist at Bank of America Merrill Lynch: The ECB must take action for this to be a more sustained move lower for euro-dollar. Otherwise the market will keep testing the ECB’s willingness and resolve to deal with the low inflationary pressure.
Mark McCormick, a macro strategist at Credit Agricole: This is the last time that Draghi can maintain credibility with verbal intervention, and so it’s really time for them to deliver. What’s been interesting, at least in the dollar framework, is US rates have decoupled from economic data.
Steven Englander, managing director and global head of Group of 10 FX Strategy at Citigroup in New York: I have some sympathy for the view that the Fed is making a mistake about how much slack there is in the labor market. But you have to admit that the Fed seems utterly convinced that that slack is there, so until you find something that that refutes their view, I don’t think investors are going to be fighting that fight.
Douglas Borthwick, the head of foreign exchange at Chapdelaine & Co. in New York: Draghi voiced concern over the strength of the euro, and his voiced contention that a more dovish stance may come into effect in June caused weak longs to capitulate. The market likes to see the white of the ECB’s eyes and I’m not sure we have seen it yet. A long position is a bet that an asset will increase in value
