Rising stocks drive risk seeking and boost Euro

08-11-2009 14:22

The Euro gained versus the US Dollar on the back of rising equities in Europe, boosting higher-return investments such as the Single Currency. The European common currency posted five days of losses versus the US Dollar and reached an one month record high against the Pound Sterling. The Dow Jones EURO STOXX 50, an equity index of Eurozone equities rose 0.6%, 40 of the 50 components went up, while the S&P 500 futures also gained. Korea’s national currency dropped versus the 16 most-popular currencies as its central bank commented that it will proceed an ‘accommodative’ policy stance.

Rising stocks

Neil Mellor, member of the Bank of New York Mellon's London-based currency strategy team, stated: “Currency markets are following the example of equity prices as they also rise and show positive levels. The Single Currency is climbing due to rising equities.” Europe’s common currency rose from yesterday’s $1.4140 in New York to $1.4170 at 9:44 a.m. in London, after it fell 1.9% in five days. The Euro valued 85.99 UK Pence, versus 85.80 Pence, following the highest level since July 29. The Single Currency traded at 137.20 Yen against yesterday’s 137.36, climbing from 136.46. Japan’s national currency advanced from 97.15 to 96.80 a Dollar.

Cash accessibility

Bank of America Merrill Lynch, owned by Bank of America, believes that the interest rate cut by the European Central Bank (ECB) had a positive influence on the accessibility of cash, which will stimulate the Eurozone economy in the present quarter.

Weakest level

The ECB began to reduce interest rates in October 2008 when Europe entered its most intensive economic crisis since the Second World War. In the period between the start of the economic slump in Europe and this year’s May, the European Central Bank cut its benchmark rate by 3.25%, reaching a level of 1%; the weakest level since the establishment of the ECB in 1998. The Fed’s target rate for overnight interbank loans amounts to zero percent.

Doubts

The South Korean currency posted a third day of losses versus the Greenback, which is the longest period of losing in nearly 4 weeks, on the bank of the central bank maintaining its benchmark rate at the weakest level of 2%, while Lee Seong Tae, governor of the Bank of Korea, expressed some ‘doubts’ regarding a recovery remain. He commented: “We will proceed an accommodative monetary policy in order that the economy can progress in the next period as financial markets continue its solid tendency from the last period.”

Moderate prospects

The South Korean Won declined 0.9% to 1,239.20 a Dollar while it earlier fell 1,243.95, which is the lowest level since July 30. Daniel Hui, a currency strategist at HSBC in Hong Kong, commented: “The Korean central bank could moderate prospects of early rate cuts, which also could affect the Won.”