Euro Losing Friends – US-FOREX.US
The Euro is losing its friends, said Andrew Wilkinson, a senior market analyst at Interactive Brokers Group, and could fall as low as 1.33 by the end of the summer.The argument for the euro has centered on the Eurozone’s tempered measures in stimulating its economy, at least compared Britain and the United States. Many on Wall Street and in other financial capitals have been concerned that the massive sums of liquidity injected into the U.S. economic recovery will eventually lead to inflation. But Friday’s labor report indicated that the economy was recovering, while inflation is far from a threat. Naturally, the Federal Reserve has argued that inflation is not a risk, saying that there is enough excess capacity to absorb the government’s massive injections. Furthermore, a number of Fed officials have also said the economy’s slow recovery blunts inflationary threats. So far that position has proven valid. U.S. interest rate futures dropped last week after Friday’s labor report as market begun wondering when the Fed might start to raise policy. Sensibly, the market has since pulled back, but the move was indicative of the optimism that exists below the surface. On Tuesday the euro was worth 1.42, while the pound went for 1.65. The PowerShares DB U.S. Dollar Index Bullish
rose 2 cents to 23.58.The British pound continues to fall against the greenback on account of economic concerns, while China’s position as the global economy’s engine hasn’t panned out as well as expected. The US Treasury auctioned 37 billion in 3-year Treasury bonds on Tuesday and investors happily bought the short duration debt. Auctions of 7 and 10 years bonds have also gone well recently. An undersubscribed Treasury auction remains the dollar’s biggest threat. So far, the world’s appetite for U.S. debt remains.
Still the long-term risks to the dollar remain, especially as the global economy recovers. Any serious uptick in commodities demand will favor metal, oil and gas exporting countries.