This Day On The Street
Continue to site
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

U.S. Dollar to Extend Gains as ECB Nears Quantitative Easing

NEW YORK (TheStreet) -- PowerShares DB US Dollar Index Bullish (UUP) may extend gains over the next year as a weakening European economy could lead the way to more aggressive stimulus by the European Central Bank.

The ECB left interest rates unchanged on Thursday, which was expected after the broad range of policy enacted in June.

During the June meeting, ECB President Mario Draghi made the bold move of taking the deposit rate below zero and announcing a new round of long-term loans for banks that will be tied to lending to smaller companies. These efforts hoped to combat deflation and a euro area economy that continues to sputter.

Unexpected declines in European economic data this week, however, reveal that more aggressive policy may still be down the road. Italy's growth figure unexpectedly shrank in the second quarter, falling back into recession and a slump that has lasted most of the past three years.

Must Read: Marathon Oil Is Poised to Benefit From Production Growth in U.S.

Italy's gross domestic product fell 0.2% from the previous three months when it forecast expanding at a 0.1% pace, according to a Bloomberg survey. Meanwhile, German industrial production rose less than estimated in June. Factory production in Germany increased 0.3% on the month, compared to consensus estimates of a 1.3% increase.

Compounding weakness in two of the euro areas largest countries gives credence to Draghi's statement on Thursday that more unconventional plans are in the coffers.

"Moreover the (ECB) governing council is unanimous in its commitment to also using unconventional instruments within its mandate should it become necessary to further address risks of too prolonged a period of low inflation," Draghi stated.

Analysts believe that full-blown quantitative easing, or the outright purchasing of bonds and other assets to stimulate the economy, will be put into place by the ECB over the next year. This should lead to further declines in the euro, and support the U.S. dollar as euro trade accounts for close to 57% of the index.

A survey of 61 foreign exchange strategists done by Reuters this week, shows that the euro is expected to decline to $1.28 in 12 months. This represents a 4% decline from current levels, and would place the exchange rate near 2013 lows.

Ultimately, investors expect the Federal Reserve to begin tightening policy soon, while simultaneously waiting for the ECB to become more aggressive in its stimulus, which should continue to fuel declines in the euro/dollar currency pair.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

Follow @macroinsights

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $95.18 0.00%
FB $117.43 0.00%
GOOG $692.36 0.00%
TSLA $232.32 0.00%
YHOO $36.01 0.00%


Chart of I:DJI
DOW 17,750.91 -140.25 -0.78%
S&P 500 2,063.37 -18.06 -0.87%
NASDAQ 4,763.2240 -54.37 -1.13%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs