Gloomy Economic Forecast Drops Euro
Posted on 20. Jan, 2009 by admin in Daily Euro Analysis, Euro Currency, Euro Currency News
The EUR declined over 300 pips against the Dollar, but increased over 130 pips against the GBP. The EUR also declined a massive 350 pips vs. the JPY, to close at 117.79. The EUR’s slump yesterday came about as investors took advantage of the low-volume due to the bank holiday in the United States. Adding to this, the Chairman of the European Central Bank (ECB) Jean-Claude Trichet revealed yesterday that the Euro-Zone’s economy may decline by 1.9% this year. This is double the previously forecasted 1%. Additionally, much of the EUR’s volatility yesterday was owed to the acknowledgment that would-be members, such as the Czech Republic may further destabilize the EUR when they do join the single currency.
Shock waves hit Europe as Britain’s Royal Bank of Scotland (RBS), Britain’s second largest bank saw shares drop by nearly 70%. This did help the EUR increase versus the GBP. However, there was a knock-on consequence as European bank shares fell sharply yesterday. This helped the EUR plummet against the Dollar and JPY, as investors fled to the two safe-haven currencies. This may continue as the Euro-Zone and Britain continue to show economic weakness as the global economic recession deepens.
The issue that may have played mostly into trading when it came to the EUR and the GBP against the U.S. is the inauguration of Barack Obama later today. Investors and most of the U.S. populous see Obama as the only man that may be able to pull America out of the worst economic crisis since “The Great Depression.” This is likely to play into investor’s behavior in the coming trading days too. Traders are advised to play close attention to economic news coming from both sides of the Atlantic tomorrow, such as Britian’s CPI figures due to be released at 9.30 GMT. Matching or lower-than-expected figures may drive the GBP lower against its major currency pairs.
