ECB Expected to Cut Rates

Investors are awaiting the results of Thursday’s meeting of the European Central Bank. The central bank is expected to cut rates putting pressure on the euro to dollar exchange rate. So far there is no indication that the ECB will adopt measures similar to those of the US Federal Reserve. Most analysts say that a rate cut from 1.25% to 1% is a certainty and may have a negative impact on the euro to dollar rate.

Risk Sentiment Affects Euro to Dollar Rate

Investors have long known that low interest rates can cause a currency to lose value and any rate cut is bound to adversely affect the euro to dollar rate. Risk sentiment, which has been changing daily, has also affected the euro to dollar exchange rate.

Bernanke Says Recovery to be Slow

On Tuesday U.S. Federal Reserve Chairman Ben Bernanke told congress that the US economy should start growing later in the year but warned that economic activity is likely to be limited companies will be slow to hire new workers. Late Tuesday the euro to dollar rate fell from $1.3313 to $1.3250.

BOA May Need $34 Billion

Concerns about US banks increased after it was revealed that the Bank of America may need $34 billion dollars to cover a capital shortfall. Investors are also awaiting the US job report on Friday which has affected risk sentiment and the euro to dollar rate. Recent economic data has been somewhat positive and many believe that the worst of the recession is over. Data showing signs of recovery has limited losses by the euro which usually benefits from rising risk appetite.

Improved Manufacturing Data

Improved US jobs data coupled with a recovering housing market and improved manufacturing data from China, Europe, and India have all caused increased risk appetite affecting currency exchange rates. Speaking of the job figures Dan Cook of IG Markets in Chicago, said “With everything dependent on the labor market, this was a fantastic indication that maybe we are seeing a turnaround.”

With so many important meetings taking place this week investors will have a full plate of data to sort through. Currency markets have been taking their cue from stock markets and this trend is expected to continue.