The EUR/USD Wanes As World Bank Lowers Growth and Forecast

The EUR/USD Wanes As World Bank Lowers Growth and Forecast
The EUR/USD Wanes As World Bank Lowers Growth and Forecast

The euro has been bouncing up and down on words from European leaders. The euro regained ground against the greenback yesterday after an ECB policymaker soothed investor concerns that officials might take steps to undermine the currency’s recent strength. ECB member Ewald Nowotny said the exchange rate was “not a matter of major concern”, contrasting with comments from Eurogroup head Jean-Claude Juncker who on Tuesday prompted investors to sell the euro by saying it was “dangerously high”.  The euro is trading at 1.3280 as it continues to lose momentum against the US dollar. There is no eco data due in the zone today. Yesterday, the Federal Reserve presented the “Beige Book” which showed the US economy is good shape and “expanding”. The report, known as the Beige Book, reports on the economic conditions of the Fed’s 12 regional banking districts. The Fed said 12 of its regional banking districts reported “modest or moderate” growth in the final weeks of 2012.

The World Bank and the IMF have been very active over the past days.  The International Monetary Fund said it would release 3.2 billion euros in aid to Greece that had been frozen for months amid fears about the country’s ability to surmount its debt crisis.

The World Bank cut its global growth forecast for this year as austerity measures, high unemployment and low business confidence weigh on economies in developed nations.
The Washington-based bank projected the world economy will expand 2.4%, down from a June forecast of 3%, after growing 2.3% in 2012. It halved its forecast for Japan, cut the US projection by 0.5 percentage point and predicted a second year of contraction in the Euro region. It also lowered projections for emerging markets led by Brazil, India and Mexico. 

A report from Thomson Reuters said that Spain, Greece and Portugal face a tougher 2013 than previously thought, while the outlook for growth in Ireland, the only bright spot among the euro zone’s most vulnerable economies, and was cut for the first time in nearly a year. A Reuter’s poll of 46 economists published on Wednesday showed austerity has caused the southern economies to shrink far more than authorities predicted but will only lead to slow fiscal improvement and unemployment will keep rising. The gloom is incongruous with optimism in financial markets that started when European Central Bank President Mario Draghi promised in July to do “whatever it takes” to preserve the euro.

The euro recently climbed over 1.34 after comments from ECB Draghi said that the eurozone was beginning to recover and said that we should see a turnaround in mid-2013, which is contrast to the numbers and eco data released afterwards. The positive sentiment towards the euro is waning in light of this contrary data and reports.

The US will look at housing data today which could further support the strength of the greenback.

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