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EUR Surge on US Crisis
By Benny Nardino | September 22, 2008
London: The EUR, euro rose against the USD, dollar today recouping most its losses against the dollar since ECB’s announcement September 11th. With the recent developments in the US economy almost every pair has gained on the dollar significantly. Since the turn of the year, US economy has been beset by one financial bad challenge to another. Is this just bad luck or poor management and lack of foresight?
Early on in the year it the credit crunch and Bear Stearns that sent the world finances tumbling. It managed to bring the dollar to its heels of 13-year low and then Freddie Mac and Fannie Mae news and its rescue package.
Last week we saw the Lehman Brothers collapse. Whilst the market was attempting to recover as a result of the cash injection into the AIG firm another debacle - Morgan Stanley today. What on earth is going on? What are the financial costs and effects on the US society and the World at large?
From a global perspective, Melvyn King, Bank of England Governor summed it up thus, “.. when America sneezes the rest of the world catches cold..” He has been proved right many times.
It was Thursday September 11th, when we saw a 12-month low of the EUR at 1.3882 on ECB announcement. The ECB’s decision to cut and restructure its lending policy to banks saw the EUR on new territories after successive days of fall. But the pair has since rebounced from that level above the 38% of the Fibonacci numbers currently trading at 1.4790 as seen on the EUR/USD 60-min chart. We are very convinced that the market would eventually settle above the 1.50 by weekend.
What does this mean to the global market? In recent months it has been on report (macro economic reports) that previous months from various nations have come up short of expectations. Many have now agreed that the recession which they once denied can no longer be abated.
As the crash and burn of the mortgage sector become a global phonomenon that won’t go away foreclosures and repoccessions has become the norm. Many frequent travelers can no longer afford basic holicdays and vacations. Those who are able to are having to cut back duration and thus creating Economic stagnation and social impasses in some cases.
However, with the EUR surge there is greater buying power in the EUR-zone. But it also mean Euro-zone goods and services become more expensive and less attractive to the outside world. Germany the biggest Euro economy tend to hurt the most due to its manufacturing-based economy.
At the moment most Governments are struggling to cope and are trying to understand the new challenges and it effects on their social needs. On the contrary, what is incredibly startling is the US policy of a strong dollar, (or surposedly ’strong dollar policy’) since Henry Paulson took over. We have heard this many times while nothing proactive is being done to remendy the problems of the now let alone the future. Unless the US begin to address these various institutional lapses those detractors of the dollar as the de-facto currency are being given more ammunition to fight. It would be naive of the American government to think that this is purely an American challenge.
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