Euro Gains on Dollar

On Thursday the euro gained on the US dollar after the European Central Bank said it would withdraw extraordinary measures to address the recession. Jean-Claude Trichet said the next round of 12 month refinancing for banks would be the last and the central bank left rates at historic lows. The ECB also raised its economic forecast for 2010. The euro is now near a 16 month high and traded at $1.5140 and also gained on the yen. Boris Schlossberg of GFT Forex stated, “He hinted that they’ll do something about an exit policy, so the first knee-jerk reaction was euro positive, but he’s not ready to endorse a full exit quite yet, so it’s really neither overly supportive of, nor detrimental to, the euro.”

Trichet’s Comments

The euro also got a boost when the Bank of America said it would repay bailout funds provided by the government. Currency analysts said that Trichet had to be cautious as any hint of a rate hike would cause traders to bid up the euro, particularly since the US Federal Reserve announced it would keep rates low for an ‘extended period.’ Hidetoshi Yanagihara of Mizuho Corporate Bank had this to say about Trichet’s comments; “He’s saying the outlook for economic growth is still uncertain, which means he’s not overly confident, and it seems that is capping the euro gains.”

Bernanke and Geithner Speak

In the US Federal Reserve Chairman Ben Bernanke addressed congress stating his case for a second term as Fed Chairman. Bernanke said the Fed’s actions have prevented the recession from becoming worse. Bernanke also promised to maintain price stability and said that rising deficits must come down eventually. Many currency analysts and traders believe that massive US deficits will undermine the dollar and cause inflation. U.S. Treasury Secretary Timothy Geithner said that the United States must convince the world that the government will be more fiscally responsible. He also restated his belief that a strong dollar is important.

Quick Forex Tip: Political conditions play a major role in global currency trading. Political instability can cause a currency to lose value. Recently political problems and deficit concerns in Greece caused the euro to fall in global currency trading centers. Market psychology although difficult to define can also affect market perceptions and can either help or pressure currencies.