Euro Rises Against Dollar for an Eight Week High

By mosesbet · Filed Under Market News Comments Off on Euro Rises Against Dollar for an Eight Week High 

On Friday, the Euro rose against the dollar in what is seen as one of its most promising moves in the past eight weeks. However, the gains did not appear to have sufficient momentum, with policymakers’ recent move being considered inadequate by investors, as far as dealing with the debt crisis in Europe is concerned.

European Central Bank to Offer Dollar Loans

The Euro’s gains were propelled by an announcement made by the European Central Bank on Thursday. It stated that the bank, along with a few other central banks, would offer dollar loans to other banks for a three month term. The objective behind this is to relieve the money market of some pressure. But, the Euro’s rise was quelled when traders focused once again on a possible debt default from Greece and the risk associated with it.

Upcoming FOMC Meeting

Traders’ attention is likely to move to the US by the beginning of the coming week. The Federal Reserve has scheduled the policy meeting for the month, on Tuesday and Wednesday. Several investors are anticipating that the Federal Open Market Committee (FOMC) of the central bank in the US will encourage the slow economy to move, by taking action, especially in the bond market. 

Analysts believe that a weakness in the dollar may be used as an opportunity for buying if the Euro continues to be under pressure. It is likely to be so if the current situation in the US and in Europe – it being improbable that the US will allow for quantitative easing (3rd round) and that Europe’s problems with debts will ease – persists. 

Analysts Bearish on Dollar

An analyst from New York stated that she was quite bearish about the dollar. According to her, most people do not expect the FOMC to spring a surprise. The Federal Reserve is most likely to opt for what she called “Operation Twist”. It will purchase Treasury bonds with longer terms and will simultaneously sell bonds with shorter terms.

The Fed will have to do this without enlarging its balance sheet. Analysts are of the opinion that it is possible that moves like this have been factored into the dollar. So, the likelihood that it will have an impact on the currency is quite small.

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