The Euro Goes for a Ride

An article by Gus    No Comments

The Euro has started going for a crazy ride this week after the ECB decided to raise rates by 25 basis points. The Euro fell from a 14 month high against the dollar Thursday after the head of the ECB (European Central Bank) put a damper on any market expectations for aggressive interest rate hikes. The Euro has also dropped against the yen, which rallied across the board after a new Japanese earthquake with a magnitude of 7.1 pushed for a closing of riskier investment being funded by a cheap yen.

The rate hike is the first hike since the 2008 financial crisis, it is meant to help battle rising inflationary pressures. The ECB chief said that the bank was ready to tighten up policy more if needed but it had not made plans to move on with more changes anytime soon.

Many investors including myself have been cautious about the Euro since we are looking at huge euro zone debt issues after Portugal asked for a bailout from the European Union, with a package estimated at around 80 billion euros.

So far the last quake to hit Japan has not caused any extra damage at the Fukushima Daiichi plant according to the plant’s operator Tokyo Electric Power Co (TEPCO). The Bank of Japan kept monetary policy steady and signaled its readiness and agility to ease policy further. The BoJ also has shown it will keep following the global trend of withdrawing excess market liquidity which was put in place during the start of the financial crisis.

The markets have been going for a wild ride lately and there is not end in sight. We will just have to keep playing it safe and be very careful holding on to any xxxJPY pairs since volatility will keep them going all over the place. Have a good weekend and I will see everyone on Sunday for the opening.

Thanks,
Gus FX