Euro to Tumble Further on Market Sentiment Shift

The euro has been falling steadily since the beginning of the month when it touched the highest rate in 15 months versus the dollar, as speculations emerged in the U.S. that interest rates will be hiked from an all time low, declining attractiveness for the European bloc’s currency.

A shift in market sentiment has been punishing the euro towards the end of the year as the outlook for the U.S. economy improved, helping the dollar to gain versus most of the 16 main traded currencies in the past two weeks as a rebound in the nation’s economy makes it very likely for the Federal Reserve to lift stimulus and raise borrowing costs in the country, currently maintained at an all-time record low. The yen has managed to maintain its trading band near 130 per euro since the beginning of the month and is likely to decline further as a rise in the the U.S. interest rates would make the yen to be by far the preferred currency for funding carry trades adding to the fact that a fast paced recovery in Asia and the South Pacific could boost appeal for the Japanese currency.

Even if the euro is likely to decline significantly versus the greenback, it is unlikely that rates will change drastically, as the European Union, specially in the case of Germany, has showed significant resilience and will probably follow other economic regions throughout the world and raise its interest rates, adding attractiveness for the bloc’s currency.

EUR/USD traded at 1.4540 as of 00:43 GMT from a previous rate of 1.4655 yesterday. EUR/JPY traded at 130.44 from 129.94 yesterday.

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