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The poor euro is getting pummelled again

Things were looking OK there for a while.

Image: AP Photo/Mindaugas Kulbis

THE EURO HAS hit a seven-month low against the dollar as the economic fortunes of the US and Europe head in opposite directions.

The common currency dropped to just above $1.06 today, not far off the 12-year low it reached earlier this year.

“It’s probably reasonable to think we can spend time down below $1.05 now,” Ray Attrill, co-head of currency strategy at National Australia Bank, told Bloomberg News.

In March, analysts including Goldman Sachs predicted the euro could be worth only 95c within 12 months and 80c before the end of 2017.

While the dire forecasts are yet to materialise, recent moves from the two regions’ central bankers have again sent the euro into a slide.

Euro Source: Yahoo! Finance

The first was the US Federal Reserve’s indication that the country’s economy was finally strong enough to withstand an interest rate hike. There is a good chance that increase will come as soon as next month.

It follows a return to growth, with unemployment down and wages up in the world’s biggest economy.

The fed has held rates at nearly zero for almost seven years to encourage spending. Low returns on cash invested in the country cut demand for the dollar, in turn pushing down the value of the currency on the markets – although the trend is reversing in expectation of the interest-rate rise.

BRITAIN AUCTION Source: Associated Press

Super Mario

Meanwhile on Friday, European Central Bank chief Mario Draghi was again wheeling out his famous “whatever it takes” rhetoric.

He indicated the eurozone could do with more economic stimulus to lift inflation, which has been hovering close to negative territory – well below its target of 2%.

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Inflation1 Source: Eurostat

The fear is that people and businesses will cut spending if they expect prices to keep falling, sending already sluggish eurozone economies into a dangerous downward spiral.

Any further stimulus would come on top of the €1.1 trillion money-printing programme the ECB has already unveiled in an attempt to kickstart the region.

Germany European Central Bank What To Watch ECB president Mario Draghi Source: Associated Press

A weaker euro also helps exporters by making their goods cheaper in countries with strong currencies, like the US and UK.

The surge of new money from the ECB has further pushed down the euro’s value with interest rates in the currency bloc already locked at record lows since September last year.

- With AFP

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About the author:

Peter Bodkin  / Editor, Fora

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