Sunday, July 3, 2011

Bank of New York Mellon: Reasons for Euro’s Strengthening

The single currency added roughly 20% versus US dollar since the Greek sovereign debt crisis first exploded a year ago.

Strategists at Commerzbank say that the European debt crisis didn’t affect euro much this year as he ECB is conducting an interest rate policy that is completely independent of the situation in Greece, Portugal, Irelands and other indebted nations.

Economists at Bank of New York Mellon think that euro managed to gain this much despite the euro zone’s problems as the central banks, especially Asian, tend to use the European currency to diversify their foreign exchange reserves. For example, China's accumulating nearly $600 billion worth of fresh reserves over the course of the last 12 months and a very significant part of it should have gone into euro.

Never the less, the specialists doubt that euro will manage to hold at the high levels above 1.4500. As the Federal Reserve ended QE2, Bank of New York Mellon began seeing from the flow data that the flows going back into US currency. As a result, the specialists assume that the process of the money flowing away from dollars into emerging markets that are being diversified might be soon over.

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