This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Upset by the Euro's Continued Strength? Blame the Central Banks

NEW YORK (TheStreet) -- Last Thursday I wrote that the recent actions taken by the European Central Bank would cause the euro to fall against the dollar.

I also wrote that hedge funds already had been betting on a fall in the euro against the dollar, which had resulted in a decline from about $1.393 in the middle of March to $1.36 just before the ECB announced its changes.

Guess what? The value of the euro did decline initially in reaction to the ECB's moves. As I wrote Thursday, "The early results: The euro plunged to a four-month low against the dollar after the ECB announced the package, falling 0.7% to $1.3503 from more than $1.36 before the central bank's rate cuts."

By Tuesday morning, however, the euro was trading around $1.355.

What happened?

Well, some analysts argued that investors (the hedge funds) had correctly anticipated the changes the ECB made and there was little room for further declines.

If one looks at other markets, however, it appears that not everything could have been discounted already by the foreign exchange market.

Yields on the sovereign debt of Spain, Portugal, and Italy fell after the ECB announcement on Thursday, and the spread between the yields on those securities and on German bonds of similar maturities have reached postcrisis lows this week.

Furthermore, the stock markets in these countries have risen by about 3% since the ECB announcement.

But, the value of the euro did not fall against the dollar as expected. Mario Draghi, president of the ECB, had previously indicated that he wanted the eurozone's currency to decline because this would help increase exports from the region and fuel faster growth.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $132.65 1.82%
FB $81.91 0.47%
GOOG $555.37 -1.71%
TSLA $231.55 6.01%
YHOO $44.36 -0.36%

Markets

DOW 18,037.97 -42.17 -0.23%
S&P 500 2,108.92 -8.77 -0.41%
NASDAQ 5,060.2460 -31.8390 -0.63%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs