Author`s name Michael Simpson

No Good News for Euro

The European currency lost almost 27 kopecks, US's prospects look more promising
The poor euro! It seems that just recently analysts seriously considered the prospects of an euro increase; forecasts of the euro rate were rather positive; analysts were anxious about zero economic growth in the Eurozone. Today all hopes of investors are focused on American securities and the evergreen American dollar. The euro rate is strongly pressed by the craving to profit from the increase of the American economy and the US currency. It seems that no positive information from Europe may change the situation. The situation won't change at least until the dollar (and consequently some index in the USA) stumbles and scares investors. For the time being, the euro rate is decreasing with respect to the dollar.

The strong belief in the US economy and the American stock market cannot be shattered neither with moderately positive news from Germany nor with the opportunity of an early dollar correction after its continuous decline within three days running. It is only Japan's Central Bank that supports the European currency by interventions into the currency trades. This is done for fear of excessive strengthening of the Japanese national currency.

Information reported by new agencies says nothing positive for the euro. By 3:30 p.m. Moscow time July 8, the European currency dropped to the level of $1.1272 per euro; the results fixed by the previous trades made up $1.1328 per euro. The Japanese yen went up to 133.55 yen per euro (the previous result was 134.05), Russia's RosBusinessConsulting news agency reports. It is highly likely that this tendency will persist.

American investors are actually optimistic about the future, even despite the fact that macroeconomic news of the US economy is still contradictory. Favorable quarterly accounts add more rational to the positive expectations and hopes. Certainly these facts serve strong support to the dollar.  

Experts of the currency market remind that since beginning of the year the euro increase was facilitated with higher rates for agency pass-throughs in the Eurozone and the uncertainty about reviving of the American economy caused by the Iraqi war and too high prices for oil. There were some not unfounded hopes that business activity in Europe would increase. Economists say that under conditions of the geopolitical uncertainty that lasted until the middle of the second quarter the European assets were more attractive than American ones. So, it is no wonder that by the end of May euro quotations went up to $1.19 per euro, the maximal showing fixed within the past four years. However, all hopes turned out to be vain.   

Now analysts say that but for grave macroeconomic problems in the Eurozone the situation would have been different. But reduction in the competitiveness of the European export damaged economies of European countries. Reduction of the dollar entailed weakening of Asian currencies: Japan got very much anxious about weakening of the yen as it feared that export might slow down as well. Finally, Eurozone economists, contrary to the self-control of the European Central Bank decided it was necessary to make the European currency weaker for the sake of economic reasons. After the recent statement of the European Commission saying that further strengthening of the euro is undesirable, the luck has turned its back upon the euro. Against this background US's economic prospects perked up. Probably this is just another reviving before one more attack.

As it turned out the situation in Europe is not that bad as investors suppose. Yesterday, Germany reported that unemployment dropped from 10.7% to 10.6%. It is postive news for a country which experts predicted a recession just a couple of days ago. However, analysts paid little attention to the report on reduction of the unemployment rate as they considered it just a seasonal fluctuation of the labor market having nothing to do with reviving of Germany's economic activity. What is more, German Minister for Economy Wolfgang Clement admitted that economy of the country was still very weak. At that, analysts noticed that following the US stock indices increase, increase of Nikkei, the Japanese stock index reached its maximal position over the last 11 months and strengthened yen positions with respect to the euro. Analysts are sure this very fact strongly influenced weakening of the euro-to-dollar rate.

The interrelations between the dollar, the euro and the ruble are not so dramatic in Russia. However, the euro has lost its triumphant status in the Kremlin's shadow. Yesterday the weighted average dollar rate in the UTS on MICEX with settlements "tomorrow" made up 30.3574 rubles per dollar. It increased by 5.6 kopecks as compared with the result fixed on Monday. The weighted average euro rate in the UTS reduced by 26.45 kopecks and made up 34.4035 rubles per euro.
Experts say that the tendency will change for dollar strengthening in Russia just by the fall and not earlier. No matter what may happen on the world markets, the dollar rate in Russia won't exceed the level of 30.4 rubles within the nearest months.