Strong week for US dollar; election worries weaken euro

Story link: Strong week for US dollar; election worries weaken euro

The euro was weaker this week, losing 1.5 percent against the US dollar, to sit at $1.2216 in late afternoon trade in London on Friday. Investors continue to worry about the outcome of German elections scheduled for this weekend. With the possibility that no party will gain a majority of the vote, the concern is that a coalition government will not be able to make what are seen as necessary economic reforms.

The dollar, on the other hand, was stronger on the week. Dollar positive news included Friday’s release of TIC data showing net capital inflows at $87.4 billion in July, well above what was expected and more than compensating for July’s trade deficit of $57.4 billion. The greenback didn’t seem bothered by data showing that the current account deficit was at $195.66 billion for the second quarter, higher than the expected $193 billion but better than the revised first quarter figure of $198.67 billion.

Analysts are divided over whether or not the Federal Reserve will raise interest rates next week or will leave them at current levels.

The dollar was up 1.4 percent on the week to ¥111.38 in relation to the yen, while it gained 2.7 percent to SFr1.2706 versus the Swiss franc and added 2.1 percent to $1.8032 against sterling.

In the UK, analysts are expecting more interest rate cuts due to slow growth that is reducing fears of inflation. Some expect that rates will fall to 4 percent by next spring.