The euro has collapsed since the beginning of the year, and the corona virus continues to drive investors into the dollar, which is considered safe. There are also economic fears. US President Trump will not like the strong greenback at all.
Trump has repeatedly let the world – and especially the US Federal Reserve – know how much he wants not only low interest rates, but also a weak dollar. The reason is clear. In this way he wants to strengthen the domestic export economy. After all, the US trade deficit is an important issue for its presidency. This is demonstrated by the customs dispute with China and the euro area.
From Trump’s point of view, the currency market is currently developing in the completely wrong direction, because US goods are becoming more expensive on the world market due to the strength of the dollar. The euro hit its lowest level in three years against the dollar last Friday at just over $ 1.08.
More exchange rate information for euros in US dollars
Almost no growth anymore
The current weakness of the common currency against the dollar shows how the players in the financial markets assess the economic situation in the Eurozone: pretty weak. The current economic data from last week confirms this. In the fourth quarter, the euro zone grew by only 0.1 percent, and the German economy was even at a standstill.
The US economy, on the other hand, grew by 2.3 percent compared to the same quarter of the previous year. Helaba foreign exchange expert Christian Apelt states: “While the US data recently surprised somewhat positively, the figures from the euro zone mostly disappointed.”
And in an already critical phase of all things, further losses are to be feared due to the corona virus – especially in the export-dependent German economy.
“Defenses against the virus”
“The German economy is in a weak state and therefore has only a low level of defense against the corona virus,” said DekaBank economist Andreas Scheuerle. “With the increasing duration of production stops in China, the supply chain problems and thus the braking effects for the rest of the world and Germany grow.”
“The export economies in the euro area will also feel the negative economic consequences for the Chinese economy,” said Commerzbank expert Christoph Weil.
What can the ECB do?
The economic downturn in Europe is causing some market watchers to speculate again on monetary easing by the ECB to boost the economy. However, the hurdle is high, says Commerzbank expert Thu Lan Nguyen. “Already the measures in the last year were apparently carried out only with ach and noise and against many critical voices.” In economic terms, things would have to go downhill so that there is a consensus for further expansionary steps, according to the analyst.
The ECB has kept its key interest rates at a record low of 0.0 percent since March 2016. Banks also have to pay 0.5 percent penalty interest if they park excess funds with the ECB overnight. The ECB also buys bonds worth EUR 20 billion a month.