The uncertainty surrounding the ECB (European Central Bank) action gripped the market and on Friday for the first time, the euro was seen declining from its seven-week high. This euro retreat is supposed to be triggered by the doubts on the policy initiatives that are being planned to curb the debt crisis hitting the euro zone.
Investors seem to be little convinced by the policymakers and their proposed actions and are showing little enthusiasm towards the currency. Consequently, the euro recorded a decline and a further ECB action is expected to bring back investors’ confidence in the currency. The speculation over the ECB plans to lower Spanish and Italian borrowing costs caused the euro to hit $1.25 from the last week’s $1.2333.
The news that the ECB is endeavoring to set yield-band targets drew the attention of the worldwide investors and this speculative report is considered to bring down the euro from its seven-month high position. For quite a long, the ECB has been considering to revive its bond-buying program as part of its strategy to strengthen the euro which is the common currency shared by 17 European nations. The ECB’s yield band target is the part of their new bond-buying program focused on restricting the speculators who often try to cash in the situation.
For the week-long, the Euro faired pretty well but the speculation around the ECB action led the currency southwards on Friday. The ECB plan to help reduce the borrowing costs of Spanish and Italian economies will be unveiled on Sept. 6 when the ECB official will have their next policy meeting. Many investors feel that lots will depend on the plans set by the policymakers and will determine the market movements.
Amidst the ECB bond buying talks, the market has been very good throughout the week with the euro reaching its highest value of $1.2589 since early July. It has gained 1.5 percent from the last week’s value. However, this remained for a brief period, as market positioning was not as favorable despite the addition of some long positions. As a result, the currency recorded a 0.3 percent down at $1.2518.
Even the U.S. dollar was also seen less favored by the currency speculators and they reduced bets in the currency. The Federal Bank is too supposed to jump into action to control the situation. The U.S. dollar’s net long position was recorded at $4.57 billion last week. A week ago, it was $8.92 billion and for the fifth straight weeks, the currency’s net long value witnessed a decline and a Fed action is a natural consequence, many believe.
On the other hand, merely the ECB’s theoretical promise of buying bonds to ensure the financial stability of the European countries may not able to control the euro’s setback in the market. Unless the bond buying program is implemented with total integrity, economists feel that the euro’s growth will remain limited. The positive impact of the ECB action is expected to work in favor of the euro’s upside, however.