Record interest rate cuts in Europe and a reduced investor appetite for riskier investments led to a significant strengthening of the US and Japanese currencies against the euro last week.
The euro exchange rate against the US dollar fell by 0.6 percent last week, to 1.2650 dollars. Since the beginning of the year, the dollar has strengthened against the euro by approximately 13 percent. Even more, around 17 percent, the euro has weakened against the Japanese currency since the beginning of the year, and just last week its exchange rate fell by about 4 percent, to 116.7 yen.
The dollar also weakened against the Japanese currency, with its price falling by 3.4 percent last week, to 92.2 yen. However, at the same time, the dollar significantly strengthened, by more than 2 percent, against the Swiss franc, to 1.2230 francs. Even more, above 4 percent, the US currency strengthened against the British pound, causing the pound’s price to fall to 1.4650 dollars, the lowest level in six and a half years.
The weakening of European currencies is a result of drastic cuts in interest rates by central banks, which are attempting to stimulate the economy in this way. A series of data indicating weakening in both the services and industrial sectors of the eurozone signals that the recession will be deeper and more prolonged than previously expected, prompting the European Central Bank to reduce the key interest rate by a record 0.75 percentage points, to 2.50 percent.
