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During early morning trading on Thursday, the euro dropped to a two-year low against the dollar. During the last year, the euro has fallen 5.9 percent against the dollar. The last week, in particular, has been a rough one for the euro. The European Central Bank chose to cut the main interest rate to 075 percent and the deposit rate to zero. After this decision was announced, investors in the marketplace started to sell off any of their holdings in the euro.
The drop in the deposit rate in the European Union means that any bank that keeps money in the euro will be losing money after they account for inflation. In response to the rate cut, banks and investors have been purchasing riskier currencies that offer higher yields. Previously, banks left 800 billion euros overnight in euros. Last night, banks dropped the amount of euros they held to 325 billion euros. Until the interest rate is increased, analysts expect this trend to continue.
Euro Drops Against the Greenback
During Thursday’s trading, the euro dropped to $1.2165 against the greenback which marks its lowest rate since June of 2010. It rose slightly throughout the day to last trade at $1.2184. This exchange rate made the euro down just 0.4 percent for the day. The euro also fell to a six-week low against the yen. It is currently 1 percent lower versus the yen and is trading at 96.60 yen.
Federal Reserve Bank Minutes Are Out
The United States Federal Reserve Bank released their minutes for the June meeting. This report revealed a mixed response to the global economy. Although many of the members of the Federal Reserve saw a tumultuous economic future, the Fed is not enacting any new quantitative easing measures at this time. According to the report, the Fed expects the economy to remain weak for at least a few years. The United States economy continues to be dragged down by slow income growth, a weak housing market and a slow global economy.
Japanese Yen Outperforms
The yen outperformed market expectations as investors pooled their money in a currency seen as a safe haven. On Thursday, Governor Masaaki Shirakawa stated that the Bank of Japan would not fix their fiscal policy with other government banks around the world. The Bank of Japan currently has its policy rate placed within a range of zero to 0.1 percent.
The dollar dropped against the yen 0.6 percent to reach 79.24 yen. For a brief period of time, the dollar rose against the yen after the United States unemployment report came out for the week. The report showed that jobless benefits were at a four-year low within the United States. After the brief rise of the dollar, the greenback dropped again as economic data showed that United States imports had weakened.
Chinese Data Awaited
Around the world, investors are pensively waiting for the gross domestic product data to come out of China. The second quarter GDP is expected to reveal falling growth within the nation. Most analysts believe that the Chinese data will show only a 7.6 percent growth for the second quarter. Although this is still better than the global average, it would represent the worst levels for China since the 2008 economic crisis.
After jobless claims were released for the United States, the British pound dropped 0.6 percent. It reached a low level of $1.5393. This marks the lowest exchange rate for the pound versus the dollar since June 6. Against the euro, the pound came in at 79.04 pence which was close to a 3.5 year high. The pound has risen in the past few months as investors search for a safe haven for storing their funds. Further rises for the sterling are unlikely, however, due to the weakened economy within the United Kingdom. As one of the largest trading partners with the Eurozone, any decline in the European Union could severely impact the pound’s status as a safe haven.
The yen rose against the pound by one percent. Japan’s currency is currently trading at its highest for the month at 122.07 yen. Due to the Bank of Japan’s decision to refrain from fiscal easing, the yen could appreciate even further against the pound.