Euro drops as ECB reluctant to hike Rates

By IBTimes Staff Reporter | January 18 2010 3:27 AM

The Euro slid against all the major currencies during last week's trading. The Euro started the week with a rising trend vs. the Dollar, however as the week progressed the trend reversed, and the Euro fell. The Euro also dropped over 300 pips against the Yen and about 200 pips against the Pound.

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The main reason for the Euro's drop appears to be the European Central Bank (ECB) decision to leave Interest Rates at 1.00%. This is clearly shown on the EUR/USD pair. Until Thursday, the day of the Minimum Bid Rate announcement, the Euro kept strengthening against the Dollar. However, as soon as the ECB announced that the Euro-Zone Interest Rates for January remains at 1.00%, the EUR/USD began to fall, and dropped from 1.4515 to 1.4335. It seems that many investors have expected the ECB to hike rates, mainly due to the extraordinary German economic recovery lately, and when the rates remain at 1.00%, they have closed EUR/USD long positions. This has also led the Euro to drop against the rest of the major currencies as well.

Looking ahead to this week, the most interesting news publication from the Euro-Zone seems to be the German ZEW Economic Sentiment on Tuesday. This is a survey of German institutional investors and analysts who are asked to rate the next 6-month outlook for Germany. If the end result will reach over 50.0 it is likely to support the Euro.