U.S. Dollar Rises and the Euro's Price Goes Under $1.34
Continued weak numbers coming out of the eurozone, however, has convinced people that Mario Draghi, the president of the European Central Bank, is going to have to give in and resort to a greater amount of monetary easing, even moving to something he has rejected so far -- quantitative easing.
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The European nations seem to be experiencing a growth rate of about 1% this year. Expectations for growth next year and for the after seem to be hung up below 2%.Disinflation continues to be the big news of the day as the estimated rate of price increase for July announced by Eurostat, the European Commission's statistical bureau, came in at an annualized rate of 0.4%. This is down from 0.5% for June. Expectations are for a further fall for vacationing Europeans in August, maybe only 0.3%. This information apparently got translated into European stock markets as averages experienced a substantial drop on Thursday. The Federal Reserve, on the other hand, seems to be moving in the opposite direction. The Open Market Committee of the Fed, which ended its two-day meeting on Wednesday, reduced the amount of securities it was purchasing monthly to $25 billion and there were indications that some of the more "hawkish" members of the committee were pushing for a rise in short-term interest rates, sooner, rather than later. I recently noted the fall in the price of the euro have been started by testimony in front of Congress by Fed Chair Janet Yellen. In her "Fedspeak," Yellen alluded to the fact that the economic recovery in the U.S. might be recovering more rapidly than had been thought recently. This might contribute to the need for interest rates to rise sooner than previously expected. When the second-quarter GDP numbers were released, ecstasy was expressed in some areas such as the Financial Times' "US Economy Roars Back With 4% Growth in Second Quarter." Hence, growing expectation that the Federal Reserve may, in fact, seek higher short-term interest rates sooner rather than later. It seems as if the investor's psychology in the stock market focused on higher short-term interest rates sooner as the S&P 500 dropped by almost 40 points. So, for the time being, it looks as if investors are believing that the European Central Bank will have to loosen up its monetary policy even further in the near future, and the Federal Reserve, whatever it does, will have a monetary policy that is relatively less easy than that of the ECB. Read More: Thar She Blows! The Fed-Induced Stock Bubble Has Popped Of, course, the cheaper euro is something that helps the ECB because it makes eurozone exports cheaper relative imports coming from America. Therefore, this is not considered to be a bad thing by eurozone officials. I mentioned in my earlier post that some people see the euro falling to $1.3200 by the end of the year. With the movements we have just seen, this level is not out of the question at all. This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
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