In addition to the euro, the dollar has strengthened against the yen

Although the eurozone has officially emerged from recession, the euro exchange rate slightly weakened against the US dollar last week on international currency markets, supported by rising expectations that the Fed will begin to gradually unwind its monetary policy stimulus as early as September.

Despite the official data on the eurozone’s exit from its longest recession to date, the euro exchange rate slightly weakened last week against the dollar, by 0.05 percent, to 1.3332 dollars.

According to the latest data from Eurostat, the eurozone economy grew by 0.3 percent in the second quarter compared to the previous three months. However, the release of this data did not provide significant support for the euro.

“The strengthening of the euro is hindered by overall demand for dollars and rising yields on US government bonds. Therefore, the single European currency did not react significantly to the better GDP data from the eurozone,” explains Neil Jones from Mizuho Corporate Bank.

Given that the recovery of the eurozone still appears fragile and that some peripheral countries continue to face difficulties, it is expected that the European Central Bank will keep key interest rates at record low levels for an extended period. At the same time, expectations are rising that the US central bank will reduce its $85 billion monthly bond-buying program as early as September.

“Data in the US will continue to improve, which will support the Fed’s plans to reduce stimulus and shift the differences in key interest rates in favor of the dollar,” emphasizes Niels Christiansen from Nordea.

In addition to the euro, the dollar exchange rate also strengthened last week against the Japanese yen, by 1.37 percent, to 97.57 yen per dollar.

At the same time, the Japanese currency weakened against the euro, by 1.27 percent, to 129.9 yen per euro.

The Japanese currency is under pressure from Prime Minister Shinzo Abe’s announcement that he is considering lowering the corporate tax rate to stimulate economic recovery.

Abe is trying to strengthen Japanese economic growth and pull the world’s third-largest economy out of 15 years of deflation with the help of expansive fiscal and monetary policies, popularly known as Abenomics.

The Nikkei newspaper quoted government sources at the beginning of the week stating that the prime minister has requested a study on lowering the corporate tax rate as a way to reduce the burden on Japanese companies and attract foreign investments.

Due to the expansive monetary and fiscal policy, the yen exchange rate has fallen by 12 percent against the US currency since the beginning of the year.