The euro has dropped to a 14 month low following poor German business confidence. There is now increasing sentiment that the European Central Bank will provide more monetary stimulus in the region.
The dip in business confidence in Germany was caused by the European Central Back playing a bigger role in the eurozone recovery. According to Germany’s Ifo institute, the country’s business climate gauge declined to 104.7 – the lowest since April 2013.
The euro dropped versus nearly all of its main currency peers, with the ECB President, Mario Draghi, stating that the exchange rate is in line with the divergence of eurozone monetary policy.
Jennifer Vail, head of fixed income at US Bank Wealth Management in Minneapolis, told Bloomberg:
“We’re absolutely bearish on the euro. It used to be that you could hail Germany as the shining star, but that’s not the case anymore.”
In afternoon trading the euro fell by 0.5 percent down to $US1.2780. This is the lowest the euro has dropped since July 2013.
Barclays expressed that it is expecting the currency will drop further, down to $US1.2094. Barclays previous made a 3.5 percent gain on a trade with a euro target of $US1.2815.
Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London, said:
“The euro is going to continue to drift lower. As a consequence of a weaker Germany, by definition the euro zone is appreciably weaker too, and it just puts a further onus on the ECB.”
In an interview with Europe 1 Radio, ECB’s Draghi said that the weakening euro “reflects the different path of monetary policies in Europe.”
As the ECB is cutting rates to record lows and pursuing monetary stimulus, the U.S. Federal Reserve has shed thoughts of increasing its rate for the first time in more than 8 years.
In an email, Steve Barrow, the head of Group-of-10 strategy at Standard Bank in London, said:
“It seems that there’s little to stop the dollar other than the market’s own exuberance. The trend is definitely your friend right now and periods of dollar weakness merely provide better levels to buy the currency.”