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European Central Bank Shakes Currency Markets

By:
David Frank

The European Central Bank has shocked the markets by suggesting that quantitative easing will not be even touched until at least December. In fact, by

European Central Bank Shakes Currency Markets

The European Central Bank has shocked the markets by suggesting that quantitative easing will not be even touched until at least December. In fact, by suggesting that the central bank would wait until December economic numbers to make a decision on whether or not to taper off of quantitative easing, it looks as if traders are reacting quite negatively and any idea of the ECB stepping away from the spigot of monetary policy this year is all but dead.

Obviously, the Euro fell against most major currencies, especially the US dollar. Breaking through the 1.10 level was fairly significant, but it now appears a 1.08 below is insight, and possibly even 1.05 after that. These are levels not seen in quite some time, and could cause problems for various banks around the world. After all, the laser was to raise interest rates sometime soon, but a strengthening dollar is of course going to make that a bit difficult. Because of this, the ECB may have disrupted the reserves plans going forward this year.

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As the Euro has fallen, other things have come about as well. Bonds of course had very good reactions to the idea of the US markets outperforming the European markets, but the data and of course the earnings results in the United States were fairly make so having said that we are generally bouncing around back and forth. With the ECB making this move, it has some traders beginning to wonder about any so-called “recovery” in not only the European Union, but globally as well. Remember, several things don’t work in any type of vacuum.

This being said, metals had a fairly good reaction to these statements, not only in Euros, but also in US dollar terms as they can be a safe haven and a low interest rate environment. Alternately, it looks as if the Euro will be on his back foot for some time, and this of course will put pressure on other currencies around the world, most notably the US dollar, the Japanese yen, and the Swiss franc.

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