The EUR / USD Debate in Light of the Current Global Economic Recession

in Currency Market, Forex Trading

The truth of the matter is that the dollar has become considerably weak in recent times. When the Bush administration plunged the US into war in Iraq, a trade deficit was the most immediate outcome. This weakened the dollar to a large extent. The long-term outcome was that many investors switched from the dollar to the Euro.

Another outcome of a reduced volume of trade in dollars is the increase in the prices of oil. The US economy is reeling from the effects of a biting recession although no negative growth has been reported. This is very true although the first quarter of a negative trend in growth has not yet been witnessed. Technically, there have to be two quarters of negative growth for a recession to be said to exist.

The American mortgage crisis has affected the value of the dollar against the Euro. Many realtors have stopped buying. They are standing by the fence waiting for the next shift in property prices before they can make a purchase. The mortgage in the US has spread its fangs into the UK where several banks have found themselves in liquidity crisis. One of these banks is Northern Bank, a renowned mortgage lender.

In the case of Northern Bank, a government bailout was needed to keep it moving. The mortgage crisis has reared its ugly head in the financial markets whereby the value of the mortgage loan is higher than the value of property.  In the Spanish real estate industry, the virus of the mortgage spread into the coastal region where the developers all of a sudden noted reluctance from buyers.

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The spread of the effects of recession into Spain was a big blow to the UK realtors considering that the developers were hoping to raise high profits through the rising prices of property in coastal holiday areas. About 65% of Spanish coastal property had previously been bought by UK residents.

As the world prepares for tough economic times ahead, many people think that the Euro holds the key to releasing the pressure that is being exerted on the dollar. Many people are also worried that the European Central Bank may refuse to reduce interest rates until the recession bites the hardest into the European economies.

[ad#downcont]The truth of the matter, again, is that a cut in the interest rates charged on the Euro will help in easing the pressure being put on the dollar. The recent trend where the prices of oil are falling and heading towards a stable low price could hint at a positive indication of an equally stabilized dollar. The recent stimulus package that the Obama administration has introduced into the US economy may turn things round. The influence that the Euro has started to command may not last for so long after all.

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