ECB and the Euro

Daily Forex Fundamentals | Written by FX Solutions | Aug 07 08 15:00 GMT |

The currency debate between the euro and the US dollar has shifted topic. It is no longer about the rate policy of the ECB and the Federal Reserve, both banks are on long term hiatus. It is not primarily about the US economy which though weak has not collapsed and has been a story for many months. The debate is now about the economic health of the Eurozone and it is brought to the market courtesy of Jean Claude Trichet the President of the European Central Bank. It is a debate the Eurozone and the euro will lose. The ECB's inflation focus is well established in rate policy and rhetoric. Mr. Trichet's admission that, "We are identifying downside risks since a number of months... the information we have which are very, very clear for some of them suggest the materialization of those risks," is the crux. His elaboration that the latest data confirmed a trough in growth in quarters two and three is clear. Mr. Trichet does not like to surprise the markets. Eurozone second quarter GDP will be very poor; barring external events the euro will fall, the dollar will rise.

Joseph Trevisani
FX Solutions

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