Daily Management Review

Euro Rising ‘Much Over 1.20’ Could Drown The Fragile Economic Condition Of Euro-Zone Under ‘Large Foreign Debt’


08/31/2017


The expectation of ECB monetary policy change is fuelling present euro rise, at the same time feeding a hovering danger on the economy.



According to an economist, the continuous rise of Euro against the “U.S. dollar” has become “the main danger” hovering over the fragile economic condition of the euro zone which still recovery process following the “sovereign debt crisis of 2011”.
 
Countries like Spain, Portugal and Ireland are “fastest growing economies in Europe” as their creditors helped them to “restore their finances” post the crises. While, Daniel Gros, the Director of “Centre for European Policy Studies”, thinks that the “recent” euro rise could jeopardise these countries efforts of recoveries. He remarked:
“That is of course the main danger point for them”.
“As long as the euro doesn't go much above 1.20 they should be able to continue. But if there would be an overshoot of the exchange rate then of course they'll have a problem because with their large foreign debt they don't have a second wheel on their machinery”.
 
On Tuesday, the rise of euro was over “1.20 level against” in a period when the “geopolitical tensions” between the U.S. and North Korea is building up. Given the gaining strength of euro, the products of Europe gets “more expensive in international markets”, whereby risking a dip of “foreign appetite” in European goods that could come as a blow to the E.U. economies.
 
Exports have been a great help in restoring Spain and Portugal’s economies, the former’s exports exceeds the respective figures of “Germany, France and Italy” from previous year. Talking to CNBC, the Forex Trading’s Head at “Saxo Bank”, John Hardy, informed:
“…we have seen a near term peak of sorts triggered as the EURUSD and dollar Index breached key levels, but the pullback suggests the USD weakness has extended too far.”
 
At present, Frankfurt is capturing all the focus, wherein the ECB’s President, Mario Draghi, is scheduled to hold a talk conducting a meeting on “monetary policy”. Investors were holding their hopes in getting “some indications” regarding ECB’s exit programme of “monetary stimulus”. However, the “recent uptick in the euro” has cast a doubt on their minds whether the bank will come out announcing “such details”.
 
One of the key causes behind the rise in euro is the “potential end” of present monetary policy, as it “supresses the value of currency”. In fact, strong currency puts a “deflationary pressure” during the period when ECB is wanting to “bring core inflation up in the region”. European Commission’s Vice-President, Valdis Dombrovskis, exclusively talking to CNBC about “tracking inflation” and an attempt to “predict” the future policy of ECB, said:
“The important element here is to monitor the recovery of inflation, whether it's reaching the ECB's target”.
“I think this will be the guiding element for (the) ECB to decide at which moment to start readjusting its QE (quantitative easing) program”.
 
 
 
References:
www.cnbc.com







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