US Dollar Dives to New Low Against Euro
Currencies / US Dollar Sep 17, 2007 - 01:26 AM GMTBy: Regent_Markets
Last week the Euro hit an all time high against the US dollar after speculation intensified that the FOMC (US equivalent of the bank of England ) will cut rates to ease the credit crunch which has plagued the equity markets and lending institution world wide.
The USD also lost against other currencies, slipping against both the pound and the yen, but the main action was with the Euro says Betonmarkets.com's Michael Wright.
There are implications from this; the Euro's strength threatens to make European exports more expensive, and therefore less competitive. However, the impact so far hasn't been too dramatic due to the currency's movement this year being gradual rather than abrupt.
The weakening dollar conversely makes U.S. exports more competitive, which is good news for American manufacturers but means rising prices for imports to the U.S.
The dollar's decline also diminishes the spending power of American tourists in Europe , while attracting to the U.S. visitors from Europe seeking cheaper accommodation and shopping.
The dollar, which has hovered within a few cents of its record low over recent weeks, had come under new pressure since the U.S. Labour Department issued unexpectedly poor August jobs data. That report strengthened speculation that the Fed will cut interest rates at its September 18th meeting by as much as half a percentage point. A cut from the current rate, 5.25 percent, would be the first reduction in four years.
Lower interest rates, used to jump-start the economy, can weaken a currency by giving investors lower returns on investments denominated in the currency. The European Central Bank last week put its own two-year run of gradual interest rate rises on hold but left many economists still expecting a quarter-point increase from the current 4 percent before the end of the year.
With the countries seemingly going in opposite directions with their interest rates, and economies, it means that there could be further gains for the European currency. The key to this will be in the wording from the FOMC, if the statement is dovish it could open up the possibility of an appreciation in the euro by as much as 3 cents.
With Betonmarkets.com you can take advantage of this potential situation by buying a "no touch" trade on the EUR/ USD. This compensates you if the currency doesn't touch a certain predetermined level for the duration of the trade. A no touch option with a 25 day duration and 400 "pips" or 0.04 Euros below the current spot price, returns 10% ROI. This means you win if the Euro continues to rise against the dollar or doesn't dip too severely.
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