Since the beginning of 2015, the ECB (European Central Bank) has endeavored to lower the value of its currency in order to gain competitivity in terms of international trade (a weaker currency makes for cheaper products abroad, which attracts foreign buyers). What’s more, investors were betting on a hike in Fed rates, which made investments in dollars rise (one invests when rates are low and then waits for the currency to gain value).
However, since rates have not budged following the recent summit between Federal Reserve leaders, investors have abandoned the dollar, giving way to a rise in the value of the euro and therefore marring the drawn out efforts of the ECB.
This status quo has also caused an increase in general concern over the current state of the world economy, as the Fed didn’t decide right away on raising rates in order to wait and see what happens in the rest of the world. With China’s recent market crash and a difficult recovery in Europe, the world economy is in worse shape than one may think. The mere fact of raising this point creates a skepticism on the part of investors and speculators capable of drawing the economy into a vicious circle with the potential of leading to a new crisis.
by Emma P.