Asbytec

EUR/GDP Could Hit Parity - Or Correct

Thank you for your comment. I read your comments on the URL. I agree with you, next year will see further contraction. A turn around is optimistic and unlikely, in my view, but not out of the question.

I have been complaining for months the ECB needs to get with it. Seems you're on that same stump...LOL It's okay...not sure who is right, just gut instinct. If they need to tighten, they have tools other than interest rates to do so.

I am hoping the Fed will raise the reserve rate, lower the money multiple, and make more use of SFP bills. With such tools, they can spur demand for borrowing at lower rates while keeping the money supply from exploding. The ECB could do the same, I believe. But, will they?

I just don't see the ECB moving on interest rates until next quarter after they get some data, as you mentioned is kind of late in the game. And even then, they'll be hawkish. I am starting to think that's a good move and the Fed should stay at 1%...no less that 0.5%. I think zero spells real trouble.

I like the idea of QE, but not sure of it's long term outcome. Will we become like Japan? Or should we just let this thing hit us and let the markets correct? They are going to correct anyway, sooner or later. Maybe better sooner.

Check out this detailed URL, if you haven't already. Very interesting read.

www.actionforex.com/lo.../

EUR/GDP Could Hit Parity - Or Correct

abcde_98, it's a good question and has been asked many times. I dunno, but I suspect they do. In fact, I've grown to admire their patients. It seems, really, liquidity is not the problem...lending is...over here and over there. I think they realize banks are awash with cash and any reduction in interest rates won't foster lending. Not even Fed's move toward zero will help spur lending, and neither would an ECB move.

However, in the face of falling asset values; global recession or worse; rising jobless claims; having been stung with bad loans; and straddled with write downs and pay outs, well...it just isn't a good environment for lending to any one despite the rates. Everyone is a credit risk, especially in the private sector.

So, as conditions worsen in the EU due in part to a strong euro, falling trade, global recession, and downward pressure on prices the ECB might have no choice but to follow the rest of the world below 2%. Besides, this is a coordinated game the central banks are playing. The Fed says cut, everyone cuts...at their own pace, of course.

After all, we're all trying to stave off deflation. But one can understand the ECB being cautious under their mandate to control prices. Once things get moving in the credit markets, prices will spike hard and everyone will be fighting to get them back under control. The ECB is just standing farther from the fire, for now.

I don't follow the EUR/GBP pair closely, but I suspect the euro will resume a downward trend in the next quarter. Just my guess...