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February 18th 2005

ECB ponders intervention on behalf of Euro

The Euro has appreciated over 25% against the USD in the last two years, much to the chagrin of the European Union, whose economy is stagnating.  Many believe the Euro’s recent strength and the subsequent decline in exports, is to blame. The US economy, on the other hand, is as strong as ever, on pace to grow at 4% this year. For this reason, the EU’s pleas for the US to prop up the dolar have fallen on deaf ears. Solving this problem, therefore, will require a multilateral effort. In order to stop the slide of the dollar, the EU must convince other nations to buy American Treasury Securities. However, analysts reckon that this represents only a short-term fix, as the dollar may continue to slide.  In this case, the European Union would find themselves earning a negative real return on their Treasury holdings. REFCO News reports:

Fundamentals support a further decline in the dollar and nearly every economist has notched higher their 12-month EURUSD forecasts towards 1.40. Therefore the ECB would simply be fighting an inevitable trend, making intervention a difficult decision since it would be a losing proposition.

Read More: Will the ECB save the Euro?

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Posted by Adam Kritzer | in Euro | No Comments »

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