Euro Could Hit $1.33 by Summer’s End

Andrew Wilkinson of Interactive Brokers Group is predicting that the euro could fall as low as $1.33 by the end of summer. Arguments in favor of the euro include the fact that the Euro Zone has been more temperate in addressing the recession than the US and the UK both of whom have injected billions into their economies in attempts to address the financial crunch and credit crisis. Many economists have been concerned that the injection of such massive sums would bring about inflation but last Friday’s US employment indicate that the economy is recovering and inflation is not a threat.

Downward Pressure on the Euro

Many Federal Reserve figures have argued that the slow rate of recovery block inflationary threats. As if validating the Fed’s position U.S. interest rate futures fell last week. The Euro Zone is widely seen as behind the curve in addressing the recession and many believe that this lack of action will put downward pressure on the euro.

Other factors affecting currency exchange rates include Tuesday’s auction of $37 billion in 3-year Treasury bonds. The auction was well received and investors snapped up the short term T bills. If past results are any indicator the auction of 7 and 10 years bonds will in all likelihood attract investors.

Weak Stocks Boost Yen

Weakening stock markets have put downward pressure on the euro which has fallen against the Japanese yen as safe haven demand increases. Many analysts see economic performance in the Euro Zone as weak. In an article published by Finnish newspaper Uutispaeivae, European Central Bank member Erkki Liikanen said that the economic recovery of the 16 nation Euro Zone would take some time. The US dollar is expected to hold recent gains and Richard Grace of Commonwealth Bank of Australia stated, “The case is building for an eventual turn higher of the dollar. The U.S. economy is improving and the economy will likely emerge from the global recession ahead of Europe.”