Dawn Meson

A strong week for USD

Based on the price movement of EUR/USD over the past week, one could say that it’s been a strong one for the U.S. dollar. From a high of $1.47669 on September 25, EUR/USD has fallen to $1.40082 as of this afternoon. The past seven days of online forex trading have even featured the euro’s greatest one-day decline against the dollar. But there’s little to cheer about in the U.S. economic outlook, and EUR/USD moves have been driven far more by Eurozone bank failures and the reluctance of U.S. banks to lend, which has tightened up the dollar supply. This week, the European Central Bank has offered one-day loans of 30 and 50 billion dollars to help maintain interbank liquidity while calling for banks to turn in surplus euros at a rate of 4.25%.

It’s difficult to forecast how the passage or rejection of the revised bailout plan is likely to affect EUR/USD. The premature announcement last week of a “fundamental agreement” actually saw the euro gain against the dollar in that afternoon’s immediate forex trading. Though a failure by the government to intervene will likely damage both the dollar and the economy, the addition of hundreds of billions of dollars to the U.S. deficit could also have a deleterious long-term impact on the dollar’s position in the forex trade market. For now, it looks like a lose-lose situation for USD, notwithstanding the woeful economic news coming out of the Eurozone.