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Forex Market Update: Euro Falls Sharply against the U.S. Dollar

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The euro fell to its three-month low against the U.S. dollar on Wednesday after the European Central Bank’s President Mario Draghi reaffirmed the bank’s commitment to accommodative monetary policy measures, citing downside risks to the euro zone economy.

At last check, the euro was down 0.44% to trade at $1.3025.

According to Reuters, technical analysts said that a slip below its 200-day moving average at $1.3073 could spark off more selling towards $1.30 level.

Earlier today, Draghi said that the euro zone’s economy was recovering gradually but still remained weak. The remark suggests that the central bank was not yet prepared to exit from its dovish policy stance.

Analysts say that recent jump in short-term inter-bank interest rates in the euro zone could also influence the ECB to provide more liquidity in the system by further easing its monetary policy. In case, the ECB responds with additional monetary easing measures, then the euro could come under more pressure.

Moreover, the spread between treasuries and German bunds is widening, which is encouraging investors to buy more treasuries, propelling the U.S. unit.

Similarly, rising speculation that the Federal Reserve could soon start to taper its economic stimulating measures in the backdrop of improving macroeconomic environment, is also prompting institutional investors to sell emerging markets equities in favor of safe treasuries, boosting the U.S. dollar.

“The U.S. economy is still in better shape than Europe, which is still very weak and can’t withstand higher rates at this time and rate spreads will continue to pressure euro/dollar lower,” said Paul Robson, FX strategist at RBS, according to Reuters.

 

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edliston
Post Written By: Ed Liston
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.

Ed Liston

Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing.

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