For most of 2014, the euro has known only one direction: down.
Since the beginning of the year, it has already lost more than 3 percent in relation to the U.S. dollar, falling under the threshold of $1.33 for the first time in almost a year on Wednesday. With an interim value of $1.3273, the last time the European common currency was worth so little was in mid-September 2013.
Behind the downswing in the euro are the varying expectations regarding interest rates in the euro zone and the United States. While the European Central Bank will most likely keep the prime rate low for a long time to come, the first rise in U.S. interest rates in several years is expected during the second half of 2015.
Investors were particularly nervous on Wednesday night as they awaited the expected release of the minutes from the late July meeting of the Federal Reserve Bank. Analysts at the Helaba Landesbank believe Janet Yellen, chairwoman of the Federal Reserve, will continue her efforts to downplay expectations of a quick turnaround in interest rates.
She’s scheduled to address the International Economic Symposium on Friday at an annual Fed conference in Jackson Hole, a resort in Wyoming. The symposium attracts central bankers from around the world including European Central Bank President Mario Draghi, who is also scheduled to speak. The theme of this year’s conference is “Re-evaluating Labor Market Dynamics.”
“No one is placing bets at the moment on a weaker dollar.”
Regardless of what news, if any, is generated at the symposium, those who follow currency valuations remain cautious. “No one is placing bets at the moment on a weaker dollar,” said Thu Lan Nguyen, a foreign exchange analyst at Commerzbank.
Slipping beneath the $1.33 threshold is a harbinger of further losses for the euro in the coming days. From a chart-technical point of view, the dip served as a brake. This most likely will lead to further sell-offs.
Sandra Striffler, a foreign currency analyst at DZ Bank, predicts the euro will decline to $1.32 in coming days, prompting another chart-technical adjustment. Longer term, the euro is expected to come under more pressure. In fact, more than 90 analysts contacted by the Bloomberg news service expect that, on average, the euro will cost only $1.28 by next summer.
Speculation about the timing of a rise in the U.S. prime rate is bedeviling not only the currency, but also the stock markets. In Frankfurt, the DAX ended its two-day attempt at recovery, closing with a minus 0.2 percent at 9,315 points, while the EURO STOXX 50 lost 0.25 percent.
Translated by Christopher Sultan