Better prospects for the Dollar
February 28th, 2010
Many economists have taken an opinion: currently, the dollar has a greater chance of appreciation against the euro than vice versa. What are the reasons?
There are three key points that underpin this perspective:
Growth
The U.S. economy has shown signs of greater weakness than Europe, but experts believe that recovery will be faster. For now, both are in recession, which is not yet known but the scope is expected to be more durable in Europe.
Interest rates
While the Fed has cut rates from 5.25% to 1% in 13 months, the ECB has dropped only 0.5 points. Analysts now believe that the monetary authority will try to apply a much more aggressive monetary policy to stimulate the economy.
It is expected that by the end of the year the ECB chooses to reduce the reference rate by 0.5 point, but economists estimate that would be greater. Morgan Stanley provides that the rates of the euro area will be at 2% in 2009, while in the U.S. predicts that will be 0.5%.
Inflation
The price increase was the argument put forward by the ECB not to cut rates, but the fall in oil prices has receded inflationary fears. Was it a bad move Trichet? The truth is that there are currently a real danger deflation in the second quarter of 2009.
Against this backdrop, it is logical that the dollar tends to rise, although it should be clear about one thing: in economics, and has been noticed in the past year more clear than ever, not be the final word.
Tags: economists, the euro., the rates
