Euro Spurred by ECB Rates Hike This Week

The euro fluctuated this week, behaving differently against different currencies, but by the end of the week the currency surged as the European Central Bank increased its main interest rate. Still, the shared European currency posted weekly losses against some stronger currencies.

The anticipated raise of the interest rates occurred and that boosted the euro in the near-term. In the longer-term doubts about ability of the European economy to survive with higher borrowing costs remain. It’s true that the major economies of the European Union, especially Germany, show strong economic growth. But the peripheral nations already face many difficulties and higher lending rates may worsen the situation. ECB President
Jean-Claude Trichet attempted to ease such concerns in his speech at press-conference after the rates hike, saying:

At the same time, interest rates across the entire maturity spectrum remain low. Thus, the stance of monetary policy remains accommodative and thereby continues to lend considerable support to economic activity and job creation.

The euro rallied against major currencies, including the US dollar, the yen and the pound. The currency even managed to rise versus some commodity currencies, like the Canadian dollar. But the economic recovery favors the currencies linked to growth and against such currencies the euro performed not so well. The Swiss franc, despite being so-called “safe currency”, also managed to outperform the euro.

EUR/USD went up from 1.4231 to 1.4483 and EUR/JPY rose from 119.79 to 122.72 over this week. Meanwhile, EUR/CHF ended the week at 1.3129 after it opened at 1.3154 and EUR/AUD closed at 1.3701 after opening at 1.3680.

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