Here’s Why the Euro Rebounded in Monday Trading
The euro has seen a slight rebound in currency trading on Monday amid drops in the values of emerging currencies, Bloomberg reports.
The value of the euro dropped sharply last week, after unexpected news that the European Central Bank had cut its main interest rate to 0.25 percent. Posting significant declines on Thursday and Friday, Monday brought a respite for the currency. Despite a very low volume of trading — perhaps due to Veterans and Armistice Day celebrations across the United States and Europe — the euro was able to post a slight climb against the dollar, possibly signaling that the short-term selloff of the euro is complete.
Meanwhile, emerging currencies took a hit as the Philippine peso tanked due to the typhoon that struck the country, leaving a massive trail of destruction and thousands of casualties. The currencies of countries such as South Korea and Thailand also dropped. The Brazilian currency has been performing poorly this month, as well, as the country has reported record debt levels that bring a new level of concern to the country’s ability to borrow money. This could lead to higher interest rates for Brazilian bonds and even a downgrade of its credit status.
Mario Draghi, the chief of the European Central Bank, announced the rate cut last week by saying that the move should help solve several problems. Chief among these were a sharp drop in inflation in the month of October — which caused concerns of deflationary pressures stifling the region’s economies — and a lack of liquidity in the area. With a move as drastic as the rate cut, the bank is unlikely to take another radical step in the near future.
This has left some traders saying that the euro now has a very finite downside, meaning that there is not much negative risk built into the price. Though this could signal that now is a time to buy, most currency traders are still bearish about the euro, preferring to wait and see before buying back into the currency. In Monday trading, the euro posted gains of under half a percent.
Having a weak euro is not necessarily a bad thing for economic activity in the eurozone. When a currency is weak, exporters of a country reap the benefits, being able to acquire more of their home country’s currency for each unit of a foreign currency that they can acquire in sales. Countries around the world are actively trying to keep their currency values down in order to protect export industries.
Though some countries, such as China, do not see this as so great a risk, nations like New Zealand and the Czech Republic have expressed the sentiment that tempering their currency’s value is a good thing for their respective economies.