By: Barbara Zigah
According to some analysts, the divergence of the Federal Reserve’s monetary policy from that of the European Central Bank’s is what is driving the disparity between the U.S. Dollar and the common currency Euro. The Euro’s appreciation against the greenback appears proof of that theory, with the common currency hovering close to a 15-month high against the U.S. Dollar in Asian trading today.
As reported at 2:46 p.m. (JST) in Tokyo, the Euro is trading against the greenback at $1.4472, edging back 0.1% from late Thursday trading in New York but still within striking distance of the $1.4521 peak struck earlier in the week. Most market players don’t believe the Euro will face difficulty rising above $1.45, especially given the Eurozone’s debt problems and with Irelands’ credit rating being downgraded earlier today.
Recent rhetoric from several Federal Reserve officials has increased investor speculation that the central bank’s ultra loose monetary policy is likely to remain as such for an extended length of time. Collectively, the position of the Fed is that inflation – and the subsequent hikes in the prices of commodities – remains transitory and manageable by the current policy. The European Central Bank, conversely, continues to closely watch inflationary pressures and acknowledges that it is ready to move again with additional interest rate hikes if the situation warrants.