The European currency has significantly weakened against the US and Japanese currencies over the past week, as all new data indicates that the recession in the eurozone is deepening.
The exchange rate of the euro against the US dollar fell by 2.7 percent last week, to 1.3490 dollars. In relation to the Japanese currency, the price of the euro plummeted by 4.7 percent, to 121.8 yen. The US dollar also weakened against the Japanese currency, by 2.2 percent, bringing its price down to 90.2 yen.
The euro came under pressure mid-week following reports of a 10.6 percent monthly decline in German exports in November, due to a sharp drop in global demand for cars and other industrial products as a result of the global recession. Additionally, unemployment is rising in the largest European economy. The situation is no better in France, where the latest data showed a larger-than-expected decline in industrial production. The business climate index in the eurozone weakened significantly more than expected in December, reaching a historically low level. A series of weak economic data from the eurozone has solidified the stance on the continued deepening of the recession, as well as expectations that this could prompt the European Central Bank to lower the key interest rate further, currently at 2.5 percent.
The British pound, on the other hand, surged to a three-week high against the dollar and the euro after the Bank of England met market expectations and lowered interest rates by half a percentage point, to 1.5 percent, continuing measures to protect the British economy from falling into a prolonged recession. The pound strengthened to 1.5290 dollars, while the euro weakened against the pound by more than one percent, to 88.81 pence, the lowest level since mid-December.
Although all new data indicates that the recession is also deepening in the US economy, the dollar strengthened last week. In December of last year, the unemployment rate in the US reached 7.2 percent, the highest level in 16 years, while about 524,000 workers were left without jobs, fewer than the expected 550,000 layoffs. However, analysts point out that the gloomy expectations have already been largely factored into the markets, and therefore the sentiment in the currency markets is slightly tilted towards the dollar. The rise of the dollar against higher-yielding currencies is also a result of a nearly 12 percent drop in oil prices on Wednesday under the pressure of the global economic crisis.
However, the dollar weakened against the yen, which finds growth impetus in the reduced risk appetite of investors due to the weakening stock markets in Asia and Europe. “The market is very nervous. There are a few good days when people cautiously venture out of their shelters, and then the stock markets fall again and everyone immediately scatters,” describes the market situation Lee Ferridge, currency strategist at State Street Global Markets. (H)
