Quite a bit has affected the European market. FX rates should have reacted happily to German elections being over; however, the little gain was unable to remain in the euro after all situations arose. Merkel won the election, but is in search of a coalition partner. The PMIs for the euro were up, but German factory details took a slight dip. Add in the AUD increasing along with JPY because of better Chinese manufacturing data and things for the euro have not looked the happiest. Find out the full details below.
ECB announcement affects FX Rates
Monday details are coming out on Tuesday, which change how one might examine the week going forward. The ECB or European Central Bank president made an announcement that has directly affected euro FX rates. The announcement stated interest rate cuts would be made. The desire is to put inexpensive money into the market.
The euro actually hit new lows against the JPY and USD because of these remarks. It indicates the Eurozone and all of Europe is still struggling. This announcement was made just moments after the worries of Angela Merkel needing to gain a coalition. Her party may have won, but there is still much to gain in order to be victorious for Germany’s future.
Germany is one of the main providers to positive euro news, thus when a new election takes place there is always a period of adjustment for the FX rates. Many feel the euro is going to be dovish in order to prepare for the upcoming months. The rate certainly needs to become more valuable.
Germany also had issues with its manufacturing report being less than expected. With the Fed taking the tapering off the market it has been a solid hit against the euro. The slowdown in manufacturing and the tapering talks will require the monetary officials in Europe to do anything they can to regain value back in the euro.
On Monday the president of the ECB stated the bank is ready to offer long term loans, but will keep money market rates. Unfortunately this choice could offset inflation so that it is too low for the better economic situation the Eurozone needs to have.
FX Rates Change with Uncertainty
The main problem for euro FX rates is uncertainty in the Fed taper and the new government. It is necessary to act quickly on the part of Germany’s new government to establish a favourable coalition. Yet, no one knows what it might look like especially since the euro has turned softer. The euro could continue to soften affecting the overall situation.
The USD might have gained a little in FX rates with renewed hope in tapering; however, it is still at seven month lows against Asian currencies. The euro may lose a little more against the USD before gaining it back and the AUD is certainly gaining in value at the moment. All of this is making things a little difficult for the euro to even out.