The ECB Key Interest Rates And The Impact On The Euro

EUR/USD under pressure: medium term 1.2000 if the European Central Bank (ECB) in Frankfurt on the main monetary authorities meet next Thursday, is about much more than the applicable as safe rate cut by 25 basis points from 1.25% to 1.00%. The ECB is at the same time its decision regarding so-called unorthodox”announce measures to further increase of the money supply. “Unorthodox measures, in the English-speaking world also quantitative easing” called, are already in the United States, Japan, Britain and Switzerland for a long time used. The U.S. fed has in this regard in March 2009 further strengthened their activities and buying bonds to reduce the interest rates on the mortgage market.

The whole thing is going hand in hand with a burgeoning assets of the Fed financed by peso. The Bank of England, Bank of Japan and Swiss National Bank employ similar means. After the Federal Government with a decline in the economic performance goes from 6% in 2009, worth the the Germany previously has never seen and the problems in the eurozone are complex (in Spain, the unemployment rate is at 18%), comes the ECB decision to play a key role. At the ECB you don’t want to go but interest rate at 1.00 percent. Effect on the euro, the expectations are high in the market. “Once again you will allow not to grant the ECB after at the meeting in April 2008 the ECB interest rate only by 25 basis points to 1.25 percent was reduced and the decision to unorthodox measures” had postponed the meeting next week. The European common currency will feel this and indicates a further depreciation against the US dollar.

The current level at 1.3300 appears much too high and a euro depreciation would help especially the export-heavy German economy a little. We look at models for the determination of exchange rates such as purchasing power parity, so a fair EUR/USD is price about 1,2000. the same applies if you the high and low price of the European common currency since the Not Acceptable!

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