Wednesday, December 15, 2010

Rising real interest rates in US underpin dollar

The drop in EUR/USD over the past weeks could merely be a correction to the uptrend. Also because the Fed is deliberately trying to weaken the dollar in order to underpin the US economy. In our view EUR/USD will likely continue to fall. Rising real interest rates are helping the dollar and we think this upswing will be on the cards for another while as the US economy continues to pick up. In addition, the eurozone crisis seems far from over. The latter requires further fiscal tightening by the governments and/or a looser monetary policy by the ECB. Both factors will impact negatively on the euro. We expect EUR/USD to drop towards 1.15 over the coming quarters. Any upward corrections will likely stop near 1.35-1.38.

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